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I.; i 



Marine Insurance. 



A Series of Lectures 

Delivered by 

F. H. CAREY, Esq., 

it 

Adjuster of Marine Claims 
to the 

LONDON ASSURANCE 
CORPORATION. 



Reprinted from LLOYD'S LIST. 



Cs 



PREFACE. 



THE following Lectures, which 
were delivered under the 
auspices of the Institute of 
London Underwriters and are 
printed by the courtesy of the Com- 
mittee of Lloyd's, are of an elemen- 
tary character, and are intended to 
give the reader an opportunity of 
acquiring the rudiments of the 
claims side of Marine Insurance and 
to enable him to better understand 
the text books when he decides to 
make the subject a matter of close 
study. 

The Lectures may, however, in 
addition be of some assistance to 
those who have a preliminary know- 
ledge of the subject, and may be of 
use to those engaged in Merchants' 
Offices whose business it is to deal 
with claims on Marine Insurance 
Policies. 

I would add that English practice 
differs in many respects from the 
practice in other countries, and I 
have dealt with the matter entirely 
from the English point of view. 

F. H. C. 



814871 



CONTENTS. 



Lecture No. 1. 

PAGE 

CARGO CLAIMS Method of Calculation- 
Application of Franchise Clause 5 

Lecture No. 2. 

GENERAL AVERAGE York-Antwerp Rules 
Average Adjustment 31 

Lecture No. 3. 

SALVAGE CHARGES Salvage Sue and 
Labour Charges F.C. and S. 
Clause Strikes Clause British and 
Allies Capture Clause 41 

Lecture No. 4. 

CLAIMS ON HULL POLICIES Clause 
Relating Thereto 55 

Lecture No. 5. 

ABANDONMENT Total Loss Constructive 
Total Loss Arranged Total Loss- 
Excess General Average Un- 
repaired Damage 73 

Lecture No. 6. 

COLLISION CLAUSE 8 per ton Clause- 
Single Liability Cross Liability 
Cauta Proxima 89 



FIRST LECTURE. 

Delivered November 16, 1920. 



CARGO CLAIMS. 



Method of Calculation. 



APPLICATION OF FRANCHISE 
CLAUSE. 

One is much tempted when dealing with 
Marine Insurance to inquire closely into 
its introduction into this country, a sub- 
ject of much interest, but the object of 
these lectures is to endeavour to impart 
to the uninitiated such information as will 
enable them to appreciate and understand 
what I might call the rudiments of the 
subject, 'and to add to the knowledge of 
those who have some acquaintance with it. 
I feel, however, that it will not be in- 
advisable if, before commencing my lectures, 
I make some reference to this matter, but 
it will be quite short and of a mere cursory 
character. In the Middle Ages there 
flourished two great associations or bands of 
traders one the Hanseatic League, who 
traded between the Baltic and the North 
with the South, and the other the Lombards, 
who traded between the Mediterranean and 
the South with the North. The principal 
centre for these two sets of traders was 
Bruges that old world city of Belgium to 
which so much reference has been made 
during the war. It is only to be supposed 
that the natural outcome of a flourishing 
trade by sea would be a demand for the 
institution of some system by which a mer- 
oliant could protect himself 'against the 
risk of losses arising from sea perils. There 



was, therefore, established at Bruges in 1310 
a chamber of Insurance where the merchant 
could insure his, goods and thus obtain 
that security against loss without which 
trade by sea could not progress and would 
never have reached its present gigantic pro- 
portions. 

OVERSEAS TRADE EXPANSION. 

The Traders of the Hanseatic League and 
the Lombards naturally did not overlook 
this country in the course of their opera- 
tions. No doubt they brought with them 
the practice of Marine Insurance. The 
invaders were eventually ejected from this 
country as our forefathers considered that 
they were able to carry on without the 
assistance of other 'gentlemen, and the. 
trade between this country and overseas 
began to expand rapidly ; the practice of 
Marine Insurance was continued, and was, 
in fact, legalised 'by Act of Parliament 
passed in 1601 during the reign of Queen 
Elizabeth. The preamble of the Act reads 
as follows : 

By means whereof it cometh to pass 
that upon the loss or perishing of any 
ship there followeth not the undoing of 
any man but the loss lighteth rather 
easily upon many than heavy upon few, 
and rather upon them that adventured 
not than upon those who do adventure : 
whereby all merchants especially those 
of the younger sort are allowed to ven- 
ture more willingly and more freely. 

There is, therefore, evidence that the prac- 
tice of Marine Insurance was well estab- 
lished in this country as far back as 1601. 
If we examine a Marine Insurance Policy 
we find its terms are expressed in somewhat 
quaint language, but which is nevertheless 
quite suitable for present-day needs, and one 
may imply therefrom that the basis of 
Marine Insurance to-day is not much 
changed from that adopted many years ago. 
Take, for instance, the policy issued by my 
own Corporation the London Assurance. It 



commences with the words, " In the name of 
God, Amen." This pious expression seems 
to imply that in the early days the negotia- 
tions for a Marine Insurance were considered 
to be of a solemn character and were con- 
ducted in a serious manner. In the present 
days there is very little solemnity in an 
Underwriter's room, but there is a good deal 
of seriousness when the green slips from 
Lloyd's tell of a heavy loss or casualty. There 
is one solemn part of the custom which, how- 
ever, remains, and may it always remain 
that is Honour. Honour is the foundation 
stone on -which has been constructed our 
huge Insurance Market, and it is well to 
bear this in mind when we have to deal 
with claims on Marine Insurance policies. 

. Then, later on, one finds the words, " Be- 
ginning the Adventure upon the said goods, 
&c., &c. . . ." The use of the word " Ad- 
venture " perhaps requires a short explana- 
tion. You will remember this word in the 
quotation I gave from the Act of Parlia- 
ment parsed in 1601. In those days, when 
steamships were unheard of, one can readily 
imagine that a journey by sea was indeed an 
adventure; there were few lighthouses, no 
telegraphy, ill-provisioned ports, no Lloyd's 
Agents, no wireless and little means of suc- 
cour in the event of a casualty. Thus, the 
word " Adventure " was a true description 
of the undertaking when a vessel left port 
for a far-away place with her cargo. The 
owners of the ship and the owners of her 
cargo were called co-adventurers, inasmuch 
as the former had ventured his ship .and the 
latter their cargoes to the mercies of sea 
perils. In the very early days of shipping 
the owners of the cargo themselves used to 
accompany their cargoes, so they, too, were 
in reality adventurers, although this ancient 
custom died out many years ago, yet recently 
in a case before me it transpired that a mer- 
chant shipping goods from one Black Sea 
port to another sent his representative -with 
the goods. The vessel put into a 
port on the way, and the merchant's 
representative -went ashore to have a look 
round, and finding an opportunity of selling 



the goods to better advantage at that port 
than at the port to which they were des- 
tined, had the goods discharged at the inter- 
mediate port. So one sees that in new cir- 
cumstances we sometimes come across old 
customs. 

Then there is reference to pirates, rovers, 
letters of mart and counter-mart expres- 
sions which take us back to the days of 
Drake and remind us of the literature of 
our school days. Later on in the policy 
appears the following phrase : 

And it is agreed by us, the insurers, 
that this writing or policy of assurance 
shall be of as much force and effect as 
the surest writing or policy of assurance 
heretofore made in Lombard Street, or in 
the Royal Exchange or elsewhere in- 
London. 

As Lombard Street was the district 
allotted .by the authorities to the Lombards 
for their operations, one may conclude that 
the Lombards, in addition to being money- 
lenders or bankers, also engaged in Marine 
Insurance. The reference to the Royal Ex- 
change indicates that Underwriters used to 
congregate in the Royal Exchange for the 
purpose of transacting their business. 

THE QUESTION OF CLAIMS. 

In dealing with the claims side of Marine 
Insurance I will first refer to what is com- 
monly known as the memorandum. If you 
will look at your policy you will see thai 
the main wording of the same concludes 
with the following clauses : 

Free from all Average on Corn, Flour, 
Fish, Salt, Saltpetre, Fruit, and Seeds, 
except General or the Ship >be stranded. 
Free from Average on Sugar, Rum, 
Hide, Skins, Hemp, Flax, Rice and 
Tobacco, under Five pounds per cent., and 
on ell other Goods the freight and ship, 
under Three pounds per cent, except 
General, or the ship be stranded, sunk or 
burnt. 



9 



The words " free from " mean that the 
policy is free of average, &c. in other 
words, the Underwriter does not pay for 
average on corn, flour, &c., unless general 
or the ship be stranded, or for average on 
sugar, rum, &c., unless such average 
amounts to 5 per cent., and on other goods 
unless it amounts to 3 per cent., or is 
general or the ship be stranded, &c. It is 
very necessary to bear this closely in mind, 
for I have known a holder of a policy in 
connection with the F.C. & S. clause to 
assert that the words " Warranted free 
from " meant that he, the assured, was to 
be freed from any loss, &c., and that such 
loss would be borne by the Underwriter. 
One moment's consideration shows the 
fallacy of such an assertion. If we take 
the ordinary P.P. A. clause and accept this 
contention what would be the result? Un- 
less the ship be stranded, sunk or burnt, 
&c., the assured can recover particular 
average, but if the vessel is stranded, sunk 
or burnt then the assured cannot recover 
for particular average, which would be 
absurd. Take particular notice of the fact 
that losses arising from General Average 
are excluded from the operation of these 
clauses. 

This word " Average " is a somewhat 
puzzling word and it may appear to many 
difficult to understand why we should con- 
tinue to use the word in a Marine Insur- 
ance policy. As commonly used we hear of it 
in connection with our batting and bowl- 
ing averages, or we employ it more or less 
to our advantage when we consider the 
possibility of a claim under our Pluvius 
policy. I do not propose to consider the 
origin of the word. If I did (and I am 
not sure that I could satisfactorily do BO) 
it would take some time and would not be 
altogether relevant to the object we have 
in view. The word " average " really 
means " division," i.e., division of loss, 
division of burden or division of results. 
For example, the runs I have made at 
cricket during the season are totalled up 
and divided by the number of times I 



10 



have batted and the result is my batting 
" average." In the same way you average 
or you should average your weekly expendi- 
ture so as not to exceed the income of the 
year. Now there are two kinds of aver- 
age one Particular or, as it is in some 
countries designated, " Simple Average," 
and the other General Average so called 
in all countries. 



GENERAL DIVISION OF LOSS. 

To explain the application of the word 
" division " to General Average is quite 
simple. The owner of a vessel arranges 
with certain owners of cargo to carry 
their goods to certain ports. The vessel 
meets with an accident say goes aground, 
and the Master engages a tug to pull the 
vessel off, and the tug succeeds in so doing. 
The Master or the owner of the ship has 
to pay to the owner of the tug a sum of 
money for the services rendered by him 
to the ship. Now the Master in engaging 
the tug did not do so for the purpose 
of serving the ship alone, but for the pur- 
pose of saving the cargo also and thus 
enable him to prosecute the adventure. It 
is therefore only right and proper that 
the money so paid should be borne by all 
the adventurers, i.e., each should contri- 
bute a share and the money so paid should 
be " averaged " or " divided " or 
" equalised " between all the interested 
parties. Thus we see that it is easy to 
understand how General Average is none 
other than general division of a loss between 
all concerned in the venture. If a ship 
caught fire and water was used to extinguish 
the fire and caused damage to the cargo, 
the loss arising from such damage 'would be 
called , general average loss, and the co- 
adventurers would have to contribute to 
such loss in the same way as they would in 
the case of money paid to the tug. These 
remarks will, I hope, give you some idea 
as to the meaning of the word " General " 



11 



Average, a subject which I shall deal with 
in a later lecture. 

If what I have said explains the defini- 
tion of average as meaning division when 
applied to General Average, you will natur- 
ally ask how I can give the same definition 
to average when applying the word to par- 
ticular average. I submit the following 
explanation. In former times, before the 
establishment of the first Marine Insurance 
Companies in 1720, the year in which the 
Royal Exchange Assurance Corporation and 
the London Assurance Corporation first saw 
the light, Marine Insurance used to be 
transacted by individuals or Underwriters, 
as they used to be called, who were the 
forerunners of the present institution known 
as "Lloyd's." When an insurance was 
offered, these individuals, if so disposed, 
took certain shares on the risk, as is done 
at Lloyd's now. If a claim arose on a par- 
ticular shipment, the particular individuals 
who insured the shipment would have the 
loss averaged or divided or equalised 
between them in proportion to the share 
of the risk which each had underwritten, 
and it is in this way that I reconcile my 
definition of average as applying to Par- 
ticular Average. 

In fact, we might describe Particular 
Average more easily by saying that it repre- 
sents damage sustained by cargo which has 
to be borne solely by the owner of the 
particular cargo damaged, as distinct from 
General Average which is to be borne by all 
owners of the cargo and the shipowner 
and / or Charterer. The owner of the damaged 
goods can recover the loss direct from his 
Underwriter, if it is admissible as a claim 
under the policy. To say that " average " 
merely means damage is misleading, 
because we should then say that general 
average means general damage, whereas 
general average means much more; it in- 
cludes expenditure, such, as the instance I 
have quoted of money paid for assistance. 



12 
THE 1906 ACT DEFINITION. 

The Marine Insurance Act, 1906, Sect. 64, 
describes a particular average loss as 
follows : 

A Particular Average Loss is a partial 
loss of the subject matter insured, caused 
by a peril insured against and which is 
not a general average loss. 

It is necessry to distinguish between a 
Particular Average loss and a General 
Average loss. The Marine Insurance Act 
describes a General Average loss as follows : 

A general average loss is a loss caused 
by or directly consequential on a general 
average act. It includes a general average 
expenditure as well as a general average 
sacrifice. 

There is a general average act where 
any extraordinary sacrifice or expenditure 
is voluntarily and reasonably made or 
incurred in time of peril for the purpose 
of preserving the property imperilled in 
the common adventure. 

In the insurance of goods there are two 
general classes of insurance. One " F.P.A.," 
i.e., warranted free of Particular Average, 
and the other " With Average," described 
as W.P.A. or W.A., i.e., with Particular 
Average. The policy covering goods insured 
F.P.A. must contain the F.P.A. clause; the 
wording of the F.P.A. clause is not always 
in the same form, but for my purpose I 
will deal with the Institute F.P.A. clause 
the one generally in use, which reads as 
follows : 

Warranted free from Particular Average 
unless the vessel or craft be stranded, 
sunk or burnt, but notwithstanding this 
warranty the Assurers are to pay the 
insured value of any package or packages 
which may be totally lost in loading, 
transhipment or discharge, also for any 
loss of or damage to the interest insured 



13 



which may reasonably bo attributed to 
fire, collision or contact of the vessel 
and /or craft and /or conveyance with any 
external substance (ice included) other 
than water, or to discharge of cargo at 
port of distress, also to pay landing, ware- 
housing, forwarding and special charges if 
incurred for which Underwriters would 
be liable under a Policy covering Particu- 
lar Average. 

We see here that unless certain specified 
events happen either to the ship or cargo, 
the policy is free of Particular Average. 

EFFECT OF THE CLAUSE. 

The effect of the clause is that unless the 
ship be stranded, &c., Underwriters will 
be free from liability to pay Particular 
Average. If, however, the ship is stranded, 
&c., the Underwriters will be liable to pay 
Particular Average irrespective of per- 
centage. The Particular Average need not 
necessarily be caused by the stranding, &c. 
The accident, stranding, sinking, &c., breaks 
the warranty and turns tne policy from 
an F.P.A. policy to a W.P.A. policy. It 
may seem somewhat strange at first sight 
that it is not necessary that the damage 
should be caused by one of the accidents, 
but the origin of this clause is probably 
due to Underwriters refusing to insure cer- 
tain classes of goods against damage unless 
the vessel met with an accident. The 
original intention may perhaps have been 
to pay only the damage caused by the acci- 
dents enumerated, but if it were so the 
clause was not properly expressed. The 
American F.P.A. clause is so worded that 
the Underwriter pays only such damage as 
arises from the accidents mentioned in the 
clause. The clause further expresses other 
conditions under which the F.P.A. Under- 
writer will bear certain damages, such as 
damages which may reasonably be attri- 
buted to collision or contact, &c. 

TJavin? exrolaine^!. I hope quite clearly, 
what is meant by Particular Average, I will 
now proceed to describe 'the method of cal- 



14 



culation. The formula for calculation is 
as follows : Ascertain the depreciation by 
a comparison of the gross sound and 
damaged values and apply the percentage 
of depreciation thus ascertained to the 
value for which the damaged goods are in- 
sured. To put the principle into practice 
I will take the following easy example : 

2 bales of goods are insured for 100 

each 200 

1 bale is damaged : 

Sound value 90 

Is sold for 45 

Loss 45 

= 50% 
Insured value 100 at 50 per cent., 50. 

The law of marine insurance is based upon 
the principle that the Policy is a contract 
of indemnity, that is, in the event of a loss 
or damage, the owner becomes completely 
indemnified. This is true provided the 
loss is due to a, peril covered by the Policy 
and that the owner has insured his interest 
for its full value, otherwise it is a contract 
of indemnity "with certain limitations. Let 
me explain. A merchant insures a ship- 
ment of 10 cases of goods for 500. When 
the ship arrives at its destination it is found 
that three cases are damaged and the rest 
are sound. The sound goods, i.e., seven 
cases, are sold and realise 420, or 60 
per case. If the ten cases had all been 
sound he would have received 600, viz., 
60 per case. The three damaged cases are 
sold for 30 each, or 50 per cent. loss. What 
is his loss? 

7 sound cases sold for 60 per case ... 4'JO 

3 damaged cases sold for 30 each ... 90 

Total proceeds 510 

This amount deducted from the 600 shows 
hi loss at 90. If the Policy were an abso- 
lute contract of indemnity he 'would recover 
90. What does he recover (using the 
before-mentionod formula for ascertaining 
the loss)? 



15 



If the goods had teen sound they 

would have realised 600 

As 3 were damaged they only realised 510 

Loss 90 

= 15% 

Or in other words, had the 3 damaged 
cases been sound they would have 

realised 180 

But being damaged they only realised 90 

Loss (50 per cent.) 90 

Unfortunately for the merchant he has 
not insured his goods for 600 .but only for 
500, and he can only recover from his 
Underwriter 15 per cent, on 500, say, 75, 
or if you take the three cases alone 50 per 
cent, on 150 or 75. He is therefore a 
loser of l15. In this particular instance 
the Policy does not act as a contract by 
which the assured becomes fully indemnified. 
The value in the Policy, except in the case 
of fraud, is a fixture, and the settlement of 
losses must be based thereon. 

POSITION OF MERCHANT. 

It is not open to the Underwriter nor to 
the assured to disturb this valuation except, 
of course, by agreement. While, however, 
the policy is not, in the instance I have men- 
tioned, a complete indemnity to the mer- 
chant, yet in other cases he may be more 
than indemnified. I will take the same 
example as I have already given, but will 
reverse the figures of the sound and in- 
sured -values. The sound value in this case 
is 500, or 50 per case, and the insured 
value is 600, or 60 per case. If the ship- 
ment had arrived sound the merchant would 

nave realised 500 

7 cases sound at 50 each realise 350 
3 cases damaged realised 50 per 
cent., on 50 each, i.e., 25, 

three cases 75 

425 

Loss (15 per cent.) 75 

The insured value 'being 600, the mer- 
chant receives 600 at 15 per cent., viz: 
90 or 15 more than he has lost. 



16 



In the first-mentioned case it is always 
open to a merchant when he finds, after 
he has insured his goods, that the market 
price has risen, to take out an additional 
insurance on increased value, and to re- 
cover a similar percentage of depreciation 
on such increased value as he recovers on 
his first policy. 

In the few very simple examples I have 
given you I hope that I have shown clearly 
the method of calculating a Particular 
Average. You must not, however, imagine 
that every Particular Average claim can 
be calculated with such ease as in these 
examples; but if I have made the principle 
clear, then it only requires practice and ex- 
perience to enable you to calculate an 
ordinary Particular Average claim. Some 
claims are so involved that much time and 
expert knowledge is required in the adjust- 
ment, and we leave those to the expert 
average adjuster. I will, however, give one 
example of a more complicated claim. We 
will assume that a merchant has dispatched 
abroad 10 cases of cotton goods, insured for 
300, and on arrival one case appears to 
be damaged. The merchant calls on Lloyd's 
Agent and informs him that his shipment 
has arrived damaged. The Agent appoints 
a Surveyor to inspect the goods and issue 
a survey report. The report shows that out 
of 10 cases Nos. 1 to 10, one case, No. 7, is 
damaged by sea-water, and the Surveyor 
recommends the case be sold. 

The invoice shows that the 10 cases are 
not of equal value. The shipment consists 
of a number of yards of cloth, say 1235, of 
which 

600 yards are invoiced at 4s. ... 120 
635 yards are invoiced at 5s. ... 158 15 

278 15 
Leas discount 5 per cent 13 18 9 

264 16 3 

To which must be added cart- 
age, freight and insurance, 
ay 25 8 9 

290 



17 



The first proceeding will be to arrive at 
the actual invoice value of the damaged 
case, which contained 125 yards, part of the 
635 invoiced at 5s. per yard, so that 

125 yards at 5s 31 5 

Less 5 per cent, discount 1 11 6 



Which leaves 29 13 6 

We then divide the proportion of 
25 3s. 9d. applicable to case No. 7. We 
will, in this case, assume that the 25 3s. 9d. 
is really arrived at pro rata to the value of 
the various goods, in the same way as the 
5 per cent, discount is pro rata to the value 
of the various goods. If this were not so 
it would be necessary to go into a close cal- 
culation to find out the actual share of the 
charges applying to case No. 7. As, for 
instance, the case being a different size, 
freight would be different, because freight 
will be paid on the size or weight of 
the case, and not on the value of its con- 
tents; but I will not impose on you a diffi- 
cult sum in arithmetic, but merely for the 
purpose of illustration will assume that the 
charges are pro rata according to the value 
of the cases. Now, the charges can be 
ignored, since the result of the apportion- 
ment will be precisely the same whether 
they are taken into account or not. We 
then proceed as follows : 
If 278 15s. (the value of the 
oases irrespective of dis- 
count and charges) are in- 
sured for 300 

Then the invoice value of case 
.No. 7, 31 5s. (irrespective 
of discount and charges) 
will be insured in propor- 
tion for 33 12 7 

PERCENTAGE OF DEPRECIATION. 

You ascertain, as I have already shown 
you, the percentage of depreciation by a 
comparison of sound ani damaged values, 
and you apply this percentage to the in- 
suied value of case No. 7, which, added to 
the survey fee and any extra charges in- 
curred owing to the ease being damaged. 



18 



gives the claim on. the Underwriter. I would 
mention here that when the claim has to 
reach a certain franchise before it can be 
rc-coverable under the policy (say, for in- 
stance, the policy is to ipay average 3 per 
cent, on each case), it must be the depre- 
ciation that must amount to 3 per cent. If 
the depreciation only amounted to 2 per 
cent, and the survey fees and charges 
brought the claim to above 3 per cent., the 
claim would not be admissible .because these 
charges cannot be taken into account in 
estimating whether the claim reaches the 
necessary franchise. 

The method of calculation of Particular 
Average is based on a sound principle. 
The value of the goods having been fixed 
by the parties when arranging the insur- 
ance it cannot be affected by the rise or fall 
in the market value. Underwriters are 
not liable for loss of market. If, owing 
to delay, the ship arrives late at her dis- 
charging port and during the delay the 
market has fallen, and the merchant has to 
poll his goods on a falling market, the 
resulting loss is a loss of market. The 
Underwriter insures the goods, he ilocs not 
undertake to indemnify the merchant 
against delay, even if such delay is due to 
a peril insured against. This is quite fair 
If the ship made a y.ery speedy voyage and 
when the goods arrived the market was ris- 
ing, the resulting profit belongs to the 
merchant he does not hand it over to the 
Underwriters. Let me show what I mean 
by a case which was recently put before me. 
I exaggerate the figures in order to make 
the point more clear. Six bales of gunnies 
arrived damaged, but if sound at the anti- 
cipated date of arrival in May last would 
have realised 480. They were insured for 
500. Unfortunately for the merchant, 
owing to adverse circumstances among 
which was congestion at the docks, he did 
not obtain his goods until August, by which 
time the market had fallen and the sound 
value was then only 300. The damaged 
bales were sold for 90. The merchant 
presented his claim as follows : 



19 



6 Bales sound xalue 480 

Realised damaged 90 

Claim on Underwriter 390 

You will observe that he expects to re- 
ceive the same money as if the goods had 
arrived in May, i.e., 90, from the sale 
and 390 from his Underwriter. That is 
wrong. If the goods had been sold in 
August he would only have received 300, 
and thus, owing to the fall in the market 
price, he would have lost as much as 180 
if the goods had been sound. It is quite 
clear he could not have claimed anything 
from his Underwriter in that event. The 
goods being damaged is fortunate for him 
because he had insured them at the higher 
figure arid the percentage of depreciation 
for which the Underwriter is liable 13 
applied to the insured value and not to 
the low sound value of September. The 
claim on the policy is therefore as follows : 

Sound value 300 

Sold for 90 

Loss (70 per cent.) 210 

Applied to the insured value of 500.. .350. 

So he receives from the sale 90, from his 
Underwriter 350, together 440, instead of 
480, which he would have received had the 
goods arrived sound in May, and a gain of 
140 if the goods had arrived sound in 
August. The gain must not in any way 
be looked upon as an indemnity for loss of 
market, but is merely due to the fact that 
the insured value was much in excess of the 
sound value in August. This example will 
emphasise what I have already pointed out, 
viz., that the insured value is the basis 
upon which the amount of an Underwriter's 
liability is determined, whether advan- 
tageous or disadvantageous. 

CALCULATION OF LOSS. 

Now, it must be borne in mind that this 
method of calculating a loss on cargo is 
only applicable w'hen goods arrive at their 
destination. If by reason of a peril covered 



20 



by the policy the goods never reach their 
destination, tut are sold at an intermediate 
port, the loss is calculated on another basis. 
Let us suppose that a vessel is wrecked dur- 
ing the voyage and the goods are salved and 
taken to the nearest port, and it is con- 
sidered inadvisable, on the ground of great 
expense, to forward the goods to destina- 
tion ; they are sold at the intermediate port. 
The claim on the Underwriters would be for 
the insured value, and they would be 
entitled to the proceeds after deducting 
the expenses of salvage and all other 
charges that may attach to the cargo. 

On the other hand, however, if goods 
reach their destination, it is immaterial how 
badly damaged they are; the claim is cal- 
culated on the basis of a Particular Average. 
There is one exception that is when goods 
do not arrive in specie i.e., when they 
arrive at destination so badly damaged that 
they have lost their character say, for 
example, when hides are so damaged that 
they can no longer be called hides and can- 
not by reconditioning be reconverted into 
hides. I have in mind a case Where wheat 
in a sunken barge was salved in a deplorable 
condition, and in which it could not be 
called wheat, but only pigs' food. It was, 
however, sent to a kiln and dried, and was 
thus -again converted into wheat. The 
assured claimed as for a total loss, but the 
Court held that the claim was one of Par- 
ticular Average. 

It sometimes happens that in consequence 
of an accident involving G.A. the vessel 
delivers part of her cargo in damaged con- 
dition and without marks, so that the ship- 
owners cannot tell to whom the damaged 
goods belong. .What is the shipowner to 
do? Supposing a cargo of jute is concerned 
and there are, say, twenty different con- 
signees, ten whose cargo is identifiable i.e., 
the marks are distinguishable get their 
cargo in full, the rem.ining ten each have 
part of their cargo short, Ray, five have five 
bales short and the other five have 10 bales 
short that is a shortage of 75 bales jute. 



21 



The unidentifiable jute therefore represents 
75 bales or what is left of them. The 
shipowner tenders to each of the first five 
consignees 5/75ths and to each of the 
second five consignees 10/75ths of the un- 
identifiable jute, much to the annoyance 
of the consignees who do not want the 
damaged jute. As a rule, to avoid this 
annoyance the shipowner generally ar- 
ranges for the whole of the unidentifiable 
jute to be sold and each consignee gets 
his share of the proceeds in due course. 

In this latter case, although the con- 
signee does not receive his goods the claim 
on Underwriters is a Particular Average 
and not for the insured value of the goods 
less proceeds. It is, however, not unusual 
in such cases, especially if the amount in- 
volved is not large, for the Underwriter to 
pay the insured va.lue of the goods short 
delivered and receive the share of pro- 
ceeds when the statement is issued, for it 
more often than not happens that the pro- 
ceeds cannot be apportioned until the 
General Average statement is completed. 
General Average statements take a long 
time to prepare and the cargo owner is of ten 
desirous of closing the matter in his books 
at once, and does not want to wait until 
the statement is issued. Nevertheless such 
a payment is a concession on the part of 
the Underwriters and not a legal right on 
the part of the assured. 

You may say why all this fuss about 
settling as for a Particular Average in- 
stead of paying the insured value and re- 
ceiving proceeds. There are two reasons : 

1. If the goods are over insured the Under- 
writer pays the whole of the amount over- 
insured instead of a percentage thereon. 

2. He would only be entitled to the net 
proceeds, i.e., proceeds after deduction of 
freight and landing charges, whereas in 
a Particular Average these charges are 
borne by the consignee. If, however, the 
freight is paid at port of shipment there 
is less objection to paying tJhe insured 
value of goods short delivered. 



THE GROSS VALUE BASIS. 

You may perhaps wonder why the par- 
ticular average should be based on gross 
values, i.e., cost plus freight and charges 
and not on net value, i.e., cost without 
freight and charges. The reason is that 
of the two methods the gross value basis 
is the more equitable. To enable the 
merchant to sell his goods he has to pay 
freight and landing charges. If you deduct 
freight and landing charges, why not de- 
duct charges prior to shipment they all 
form part and parcel of the market value at 
destination. I have shown that the mer- 
chant's loss is the difference between the 
sound value and the damaged value which 
results in a certain percentage of deprecia- 
tion, and the Underwriter ought only to pay 
this percentage of depreciation on the 
amount for which the client has insured his 
goods. This is only fair. I will give you 
an example of calculating a Particular Aver- 
age on the two different methods. 

GROSS VALUES. 
Insured value 100 

Gross sound value 100 

Gross damaged value 70 

Loss 30 per cent 30 

The assured having insured his goods for 
their actual arrived market value recovers 
his whole loss, neither more nor less. Taking 
similar figures and basing the claim on 

NET VALUES. 
The insured value 100 

Gross sound value 100 

Freight, duty and other charges ... 30 

70 

Damaged value 70 

Freight and charges 30 

40 

Loss (say 42 per cent.) 30 



23 



The actual loss on sale in both cases is the 
same, but there is a gain on the net value 
basis of 12, although the amount insured 
and the sound value are the same. 

In countries where heavy import duties are 
payable, the Underwriters sometimes agree 
to pay claims based on values less duty. In 
such cases they no doubt receive a commen- 
surate premium for the increased liability 
they incur through claims being based on 
such values. I once had a case before me 
where a settlement on values less duty re- 
sulted in a total loss. The case concerned 
some tin plates which were found badly 
damaged at New York. I do not remember 
the actual figures, but the claim worked out 
something like this : 

Insured value 100 

Sound value, including duty 175 

Duty 75 

Net value, after deduction of duty 100 

Damaged value 70 

Duty 75 

No proceeds 

Loss 100 

This is an exceptional case, and is due to 
the fact that the same duty is payable on 
the damaged goods as the owner would have 
had to pay if they had been sound. If the 
duty is payable ad valorem, i.e., on values, 
then such extreme results would not arise. 

Now, of course, it does not follow that 
because goods are damaged they must neces- 
sarily be sold. It is often more to the ad- 
vantage of both the consignee and the 
Underwriter that the former should accept 
tho goods with an allowance. This saves 
auction expenses and the assured himself 
takes any profit that would accrue to a 
buyer if the goods were sold. This allow- 
ance is generally fixed at a percentage, say, 
10, 15 or 20 per cent., or other percentage, 
and the Underwriter will then pay the con- 
signee a similar percentage on the insured 
value of the damaged goods. For example, 



24 



Insured value of damaged goods, 100. 
Allowance 10 per cent. Underwriters pay 
10. I hope that I have now explained 
clearly to you what is meant by Particular 
Average, and how it should be calculated. 
I have already referred to the memorandum 
in the Policy. In the earlier days the 
franchise mentioned in the memorandum 
was strictly applied. Now, however, the 
memorandum is more or less obsolete, the 
Underwriter specifically indicating the con- 
ditions of franchise by special clauses, which 
differ according to the goods insured. If a 
Policy contains the words " to pay average " 
without mention of any franchise, then the 
franchise in the memorandum applies. 

In connection with the phrase in the 
memorandum warranted free from aver- 
age under 3 per cent., or 5 per cent, as the 
case may be, I would mention that this 
means that the Underwriter does not pay 
a claim if it is below 3 per cent, or 5 per 
cent., but if the claim is 3 per cent, or 
5 per cent, and over he pays the whole 
claim. The word " under " does not free 
him from paying the proportion of the 
claim under 3 per cent, or 5 per cent., but 
frees him if the whole claim does not 
amount to 3 per cent, or 5 per cent. If 
he wishes to be free of the first 3 per cent, 
or 5 per cent., he inserts a clause to this 
effect, as follows : "To pay average in ex- 
cess of 3 per cent, or 5 per cent, (as the 
case may be)." 

I think it is necessary that I should 
explain here that some people are under 
the impression that an F.P.A. policy is 
of more advantage to the assured when 
the warranty is broken than a " with 
average " policy would be. This is due 
to the fact that they assume that in a 
" with average " policy the franchise of 
three or five per cent., as the case may be, 
is enforceable under all circumstances, 
whereas under the F.P.A. clause, if the 
warranty is broken, all average is payable 
by Underwriters irrespective of percentage. 
I would, however, point out that if refer- 



25 



ence is made to the memorandum it will 

be seen that it is worded : 

Corn, fish, &c., are warranted free from 
average, unless general or the ship be 
stranded. Sugar, tobacco, &c., are war- 
ranted free from average under 5 per 
cent., and all other goods, also ship and 
freight are warranted free from average 
under 3 per cent., unless general or 
the ship be stranded. 

For the purpose of my explanation we 
can eliminate the words " unless general." 
The clause therefore reads : 

Corn, fish, &c., are warranted free from 
particular average unless the ship be 
stranded. Sugar, tobacco, &c., are war- 
ranted free from average under 5 per 
cent, (or 3 per cent, as the case may 
be) unless the ship be stranded. 
If the ship be stranded then the war- 
ranty of franchise of 5 per cent, or 3 
per cent, disappears, and there is no fran- 
chise at all in the policy. It might then 
be said that in a " with average " policy 
the franchise only disappears when the 
vessel is stranded, whereas in an F.P.A. 
policy there is no franchise if the vessel 
is stranded, sunk or burned or in collision, 
&c. This is so, but as a matter of fact 
the franchise in a " with average " policy 
would by practice disappear if the vessel 
had been sunk or been burned or if the 
damage was caused by collision. In any 
event if either of these accidents hap- 
pened and damage to the cargo occurred, 
it is more than probable that the damage 
would, exceed the required franchise. At 
all events it may be deemed in practice 
that an F.P.A. policy with the warranty 
broken is not a better policy than an 
ordinary " all risk " policy. 

A SUGAR AVERAGE CLAUSE. 

The various franchise clauses applicable 
to various goods are numerous, and you 
must refer to your own office books for in- 
formation concerning them. I will, how- 
ever, mention an average clause applying 
to sugar : "To pay average on each series 



26 



of 50 bags following landing numbers," 
for the purpose of explaining the latter 
three words, generally indicated by the 
initial letters f.l.n. As the bags are landed 
from the steamer at port of discharge they 
are weighed and numbered. At one time 
I suppose they were discharged in the same 
order as they came out of the hold, say, 
for instance, five sound bags, then one 
damaged, then four sound, then another 
damaged, and so on. Discharged in this 
order, it is probable that the claim on the 
number of damaged bags among the first 
50 bags for instance landed would not reach 
the franchise. This was all right for the 
Underwriter, but did not suit the merchant, 
so that for many years past the damaged 
bags, as they come up from the hold, are 
set aside and landed after the sound portion 
has been discharged. Suppose there are 
1000 bags of sugar and 70 are damaged ; 
the 930 are landed first and are followed 
by the damaged 70. There are, therefore, 
18 series of 50 bags 900 landed sound 
one series in which there are 30 sound and 
20 damaged, and one series of 50 all of 
which are damaged. If the claim on the 
19th series of 50 bags, i.e., 30 sound and 20 
damaged, and on the 20th series of 50 bags, 
all damaged, reaches the (franchise, the 
Underwriter pays the claim. 

I should like to deal with other averages 
but time (will not permit, 'but the same 
method as I have indicated in the example 
I have given applies to all average clauses 
where the franchise is based on a "series." 

I will now shortly refer to the method of 
dealing with damage on one or two special 
articles. 



COTTON AND TOBACCO CLAIMS. 

If bales of cotton arrive damaged they 
are, unless seriously damaged, picked and 
made merchantable, i.e., the damaged por- 
tion is picked off and sold, and the bale is 
mended, i.e., put into saleable condition. 
The claim is paid irrespective of percentage, 



27 



i.e., whether it is large or small. The 
Underwriter pays the sound value of the 
damaged cotton picked off less one-sixth if 
country damaged or one-third if sea 
damaged; strictly speaking it should be the 
insured value, but to save time and trouble 
and expense of adjustment, the sound yalue 
is adopted. The one-sixth or one-third is 
deducted because it is assumed that the 
weight of the damaged cotton has been in- 
creased to this extent by being damaged by 
absorption of water. In addition the 
Underwriter pays the cost of picking and 
mending, and is credited with the proceeds 
of the damaged cotton and canvas. As 
all bales of cotton have to receive some at- 
tention after the transit even if sound, the 
Underwriter is also credited with the 
ordinary cost of mending. A somewhat 
similar process is adopted with regard to 
tobacco. If tobacco is damaged it is 
"garbled," i.e., the damaged portion is 
cut off the Underwriter pays the insured 
value of the tobacco cut off, and sometimes 
a depreciation on the portion remaining, be- 
cause if there is any indication that a hogs- 
head of tobacco or a bale has been 
" garbled " a buyer may not pay full 
price; he may want some allowance even 
though the tobacco itself is absolutely 
sound. Owing to the heavy duty on all 
tobacco taken out of bond the damaged 
tobacco cannot be sold here, but there is a 
market on the Continent where the duty 
is not heavy and the Customs, therefore, 
allow such tobacco to foe shipped abroad 
without payment of duty. The buyers on 
the Continent, however, only give a small 
price, say 2d. to 4d. a lb., so that the 
Underwriter does not get much by way of 
credit. The Underwriter also, of course, 
has to pay the cost of garbling, which is 
a very heayy item in these days. 

TEA CLAIM. 

The tea clause reads : " Average each 10 
chests, 20 half chests, and 40 boxes." The 
method of dealing with damaged tea is 
somewhat similar to that adopted for cotton 



28 



and tobacco. If a chest is damaged, it is 
opened and the damaged part removed and 
the chest is sold as a broken chest with all 
faults. The claim is adjusted on -a Par- 
ticular Average basis. The sound value is 
arrived at by taking the weight of the 
damaged chest in sound condition, and de- 
ducting therefrom the proceeds and apply- 
ing the loss to the insured value in the 
usual manner. 

COCOA. 

To ascertain the sound value of a damaged 
bag of cocoa, three pounds per bag is added 
to the weight of the damaged bag and 
the depreciation ascertained in the usual 
way. 

These are some of the principal articles 
which are dealt with in a special manner 
when they arrive with damage, and I call 
attention to them simply as a matter of 
interest. What is the procedure to be 
adopted in order to formulate the claim 
against the Underwriter? The assured 
advisee his Underwriter that his goods have 
sustained damage; the Underwriter ap- 
points a Surveyor, and if he and the assured 
cannot agree as to the amount of deprecia- 
tion the damaged goods must be sold. 
When this has been done, the assured hands 
to the Adjuster the Policy, survey report 
and original invoice and copy of account 
sales. The Adjuster draws up a statement 
basing the claim on the terms of the Policy, 
end adds any charges such as survey fee 
and his own charge. These documents, 
with the Adjuster's statement, are handed 
to the Underwriter either through a broker 
or by 4 the assured himself. The claims 
settler 'examines the documents, and if he 
finds them in order he passes the claim for 
settlement and payment. 

I will now draw attention to one or two 
risks which give rise to damage but which 
are not covered by a Policy on goods unless 
specially included in the Policy. 



29 

SWEAT DAMAGE. 

This damage is caused iby condensation in 
the hold of a vessel. A steamer loads her 
cargo, say, in a tropical climate, and during 
her voyage passes through a more temperate 
zone, the waters being cooler act on the 
ship's sides in the same way as cold does 
on the windows of -a warm room. Con- 
densation is set up, and unless the cargo i 
properly stowed the water caused iby the 
condensation will damage the cargo. 

Damage due to delay. The goods which 
are liable to natural deterioration, such as 
fruit, will, if the voyage is prolonged, reach 
their destination in a damaged condition. 
Although the delay may be due to a sea 
peril, yet the damage is not recoverable. 

Inherent vice covers the case of damage 
due to the nature of the article itself, such 
as the instance I have just mentioned, i.e., 
fruit 'becoming damaged owing to natural 
decay. 

PILFERAGE. 

With regard, to the question of theft, i.e., 
theft or pilferage as we understand the 
word, in the body of the policy you will 
find that one of the risks mentioned is 
" thieves," and you might quite justly con- 
clude therefrom that theft or pilferage was 
therefore covered. This is not so. The 
word "thieves" in the policy means rob- 
bery with violence, i.e., by bands of robbers 
or wholesale looting done openly. It does 
not cover pilferage, which is clandestine 
theft theft done under cover and by 
stealth. That the word " thieves " should 
not cover both classes of theft may appear 
curious, but, so far as marine insurance is 
concerned, the distinction is well established, 
and it is confirmed by the Marine Insurance 
Act of 1906. The risk of sweat damage is 
sometimes, and the risk of pilferage fre- 
quently, now covered specifically in the 
policy. 



30 



I have been asked to explain another risk 
which is being covered rather extensively 
now, i.e., the risk of non-delivery. Non- 
delivery, as the words imply, means that 
certain bales or cases of goods, on arrival 
of the steamer at destination, cannot be 
found, and consequently cannot be de- 
livered. That is, they are short delivered, 
or delivered short. It differs from pil- 
ferage, inasmuch as in pilferage the case is 
delivered short of its contents, while in 
non-delivery the case is not delivered at all. 
In pre-war times shipowners, under the Bill 
of Lading, admitted liability up to a cer- 
tain value fixed in the Bill of Lading for 
non-delivery, but as these losses have been 
rather extensive of late, some claim that 
non-delivery is due to pilferage, and pilfer- 
age is one of the risks from which they axe 
exempted by the terms of the Bill of 
Lading. Underwriters do not admit this. 
Non-delivery may be due to goods being 
carried to the wrong port, and also to other 
circumstances. The two risks are distinct, 
notwithstanding the fact that non-delivery 
may be due to pilferage. During the war 
I heard of a case where several bales were 
short delivered. They could not 'be traced, 
and the only conclusion regarding the loss 
was that the goods must have been shipped 
by a subsequent steamer, which had been 
torpedoed. As you all probably know, 
Underwriters insert in their policies a 
clause to the effect that they only pay 75 
per cent, of losses due to pilferage and to 
non-delivery, and that they are entitled to 
receive 75 per cent, of any sum the assured 
may recover from the carriers. 

These remarks bring my lecture on Par- 
ticular Average on goods to e conclusion. 



SECOND LECTURE. 
Delivered December 10, 1920. 



GENERAL AVERAGE. 
York-Antwerp Rules. 



AVERAGE ADJUSTMENT. 

General Average is not an incident that 
arises out of insurance insurance is quite 
a modern institution compared with General 
Average. General Average is the natural 
outcome of the conveyance of goods by sea. 
When for some cause the ship and her cargo 
were in peril, and in order to save them 
from the consequence of such peril, it was 
deemed advisable to make a sacrifice of 
part of the ship or cargo, the question natur- 
ally arose why should the shipowner, or the 
owner of the cargo whose goods bad been 
sacrificed, bear a loss which was incurred 
for the benefit of others besides themselves. 
The difficulty was solved 'by making the 
parties whose interest was saved contribute 
to the loss of the parties whose interest had 
been sacrificed. 



IMPLIED SACRIFICE. 

General Average implies a sacrifice. Now 
e sacrifice implies an act done for the benefit 
of others. They who benefit by the sacrifice 
should, in common fairness, lighten the 
burden of those on whom the loss by sacrifice 
falls. A General Average loss must be a 
loss of something of value, otherwise there 
is no sacrifice. For instance, to throw over- 
board a bale of burning jute is not sacrifice. 
It would not have been thrown overboard 
if the fire could have been extinguished; 



it would have been totally destroyed by 
fire, therefore it is no loss to throw it 
overboard. 

General Average, like charity, covereth a 
multitude of sins, and I have known oases 
where General Average sacrifice has in- 
cluded articles the loss of which might be 
traced to the voluntary act of some of the 
ship's crew. I once heard of a case where 
a Greek Captain, who probably had bad his 
watch stolen, stated in his log that he had 
thrown his watch overboard to lighten the 
vessel. I 'have been told that in some 
countries, before a sacrifice of cargo is 
allowed to be made, there must be a sacrifice 
of some article of the ship, and on one 
occasion a Captain, consideiring it necessary 
to jettison cargo, first of all threw overboard 
a sardine tin opener so as to comply strictly 
with the law that he must sacrifice part of 
the ship's material first. 

As a writer put the matter : " The object 
of this contribution is the repayment of 
some expenses incurred or the restitution 
of something valuable sacrificed for the 
benefit of the whole." This definition of a 
very reasonable principle being kept in 
view, will be a key to the whole sxibject. 
We can bring to its test any charges under- 
taken or any loss sustained in connection 
with a loaded ship. Let us put this state- 
ment to the test. The cargo of a vessel 
is on fire; to extinguish the fire, water is 
poured into the hold on to the cargo which 
is on fire. This water, however, damages 
sound cargo in other words, the water used 
to extinguish the fire in the burning cargo 
also damages the cargo which is not on fire. 
Was the damage to the sound cargo a 
sacrifice incurred for the benefit of the 
whole? Undoubtedly. The pouring of water 
into the hold is a voluntary act. It is quite 
evident that the effects of the water could 
not be confined to the burning cargo, but 
would also damage other cargo, therefore 
the damage to the other cargo is a sacrifice 
incurred for the benefit of all concerned in 
the adventure, and forms the subject of a 
General Average contribution. 



CARGO JETTISON. 

The earliest known form of General 
Average sacrifice is jettison, which in the 
words of a well-known writer is " the cast- 
ing out of the ship, when in great danger, 
a portion of her cargo or a part of her 
own stores, materials, &c." The cutting 
away of a mast to save the vessel and her 
cargo is another early form of General 
Average. Another form of General Average 
sacrifice, to which I have already referred, 
is the damage done to cargo by the use of 
water or steam to extinguish a fire. An 
allowance for water damage in General 
Average, however, is only admissible on that 
part of the damaged cargo which has not 
been in actual contact with fire. I have 
already mentioned the case of jettison of a 
bale of jute on fire and pointed out the 
reasons why such a jettison would not be 
acknowledged as a General Average sacri- 
fice, and the same principle applies to 
damage done by water. The goods actually 
on fire are the cause of the use of the water, 
and it would be unreasonable to make good 
in general average damage by water to such 
goods. 

Another subject of General Average is the 
expenses paid for assistance rendered by 
third parties to the vessel when in danger, 
such as towing a disabled vessel into port. 
Such expenses may either be General Average 
or salvage charges. The distinction is not 
too clear, but for the moment we will call 
them General Average. 

PORT OF REFUGE EXPENSES. 

A further item is port of refuge expenses. 
Supposing a vessel at sea meets with an 
accident and needs repairs to enable the 
voyage to be continued, or supposing she is 
disabled and taken in tow. She proceeds 
to the nearest suitable port; such port is 
called a " port of refuge," and the expenses 
of entering such port being incurred for 
the general safety form the subject of 
General Average. 



34 



One other example of General Average. 
A vessel meets with heavy weather and is 
delayed thereby and her stock of coal runs 
short. In order to keep the fires going 
and so maintain steaming power ship's 
material, and sometimes even part of the 
cargo, is used as fuel; the value of the 
materials and /or cargo so used would be 
made good in General Average, less credit 
for value of coal that would have been used 
had it been on board. It must be shown, 
however, that the vessel, when she left 
port, had on iboard sufficient coal to take 
her to the next coaling port. 

The introduction of steamships gave rise 
to other forms o<f General Average sacrifice, 
such as the damage done to machinery in 
forcing the vessel off the ground, provided 
always that when on the ground she was 
in peril i.e., in danger of running serious 
risk if she remained aground. If a vessel 
went aground, say, at low tide, and would 
have come off the ground when the tide 
rose, she would not probably be held to be 
in danger, and, therefore, if the engines 
were worked and sustained damage such 
damage would not be a sacrifice. 

THE YORK-ANTWERP RULES. 

The law as to what is and what is not 
General Average differs in different coun- 
tries, but in the main the items I have men- 
tioned are practically accepted as General 
Average in nearly all countries. With a 
view to bringing about uniformity in the 
law, an Association was formed under the 
title of " The Association for the Reform 
and Codification of the Laws of Nations." 
This Association held a meeting at York in 
1864 and another meeting at Antwerp in 
1877, when a code of Rules was adopted for 
the stating of General Average, which were 
known as the York-Antwerp Rules. Later 
on in 1890 the Association again met in 
Liverpool, when the code -was revised, and 
the Rules known as the York-Animerp 
Rules 1890 were adopted. The adjustment 



35 



of General Average as between the ship- 
owner and the owner of cargo depends upon 
the clause in the Bill of Lading dealing with 
the matter, but it will be found that in 
most Bills of Lading in use at the present 
time it is stated that Genera] Average is to 
be dealt with on the basis of York-Antwerp 
Rules. 

I would like you all to obtain a copy of 
the York-Antwerp Rules, as a study of the 
same will enable you to understand this 
subject of General Average much more fully 
than I can explain it in the short time at 
my disposal. I will, however, deal with a 
few of its clauses. 

The General Average clause in the In- 
stitute Cargo Clauses reads as follows : 

General Average and Salvage Charges 
payable according to Foreign Statement 
or per York-Antwerp Rules if in accord- 
ance with the contract of affreightment. 

If, therefore, the Bill of Lading or 
Charter-party contains provision for York- 
Antwerp Rules, then these Rules are the 
basis for contribution to General Average. 
If the Bill of Lading or Charter-party 
does not mention the rules, then 
the General Average is based on the 
law existing at the port of destination. 
In some cases the Bill of Lading may provide 
for General Average in accordance with the 
law of the country to which the ship belongs, 
in which case complications may arise be- 
tween the cargo owners and their Under- 
writers, as presumably foreign statements 
-would be held to mean a foreign statement 
at port of destination. 

I trust that I have clearly conveyed to 
you the meaning of General Average, and 
now I will explain the basis on which the 
various parties pay their share of the 
General Average sacrifice or expenditure. 

I wish you to bear in mind that the values 
over which the General Average is appor- 
tioned are the values at the port at which 



36 



the voyage terminates. The shipowner pays 
on the value of the ship, if sound on the 
sound value, if damaged on the damaged 
value. To assess this value the services 
of a ship valuer are often required. The 
shipowner also pays the share of General 
Average attaching to the freight at his 
risk at the time of the General Average 
Act. Freight, as you are all aware, is 
the money paid by the cargo owner to the 
shipowner for the carriage of his goods. 
The value of freight for contribution pur- 
poses is the gross freight, less expenses 
incurred after the General Average Act, 
such as crew's wages, harbour charges, 
&c. The cargo owners pay on the market 
value of their goods less freight and land- 
ing charges. The reasons for these deduc- 
tions from freight and from cargo value is 
that the General Average has not prevented 
the incurring of these charges, but, on the 
other hand, has caused them to be in- 
curred. In other words, if the vessel had 
been lost and had not been saved by the 
General Average Act, the shipowner would 
not have had to pay crew's wages and har- 
bour expenses, and the cargo owner would 
not have had to pay freight and landing 
charges. Moreover, if the shipowner has 
to pay on his freight, and the cargo owner 
had to include freight in the value of his 
cargo, freight would be contributing twice 
over. If the shipowner receives his freight 
in advance, i.e., if the cargo owner pays 
freight at port of shipment and not at 
port of destination, then freight becomes 
part of the value of the goods and the 
General Average thereon is paid by the 
cargo owner. The amounts admitted in 
General Average for sacrific of ship, cargo 
or freight have also to bear their propor- 
tion of General Average contribution, as if 
this is not done, the owner of the sacrificed 
property would be in a better position than 
the owner whose property had not been 
sacrificed, as the latter would be called upon 
to pay hie share of the General Average, 
while the former would receive the value 
of his cargo in full. 



37 
AN EXAMPLE. 

I will now give you an example of a 
General Average contribution. The vessel 
A with a cargo of jute has been aground. 
The engines are worked to get her off, but 
unsuccessfully. It is decided to lighten the 
vessel. The vessel being provided with wire- 
less, advises the nearest Lloyd's Agent and 
asks for lighters and a tug to be sent. The 
lighters arrive and :part of the cargo is dis- 
charged and the lighters are towed into the 
nearest port for safety, because it would not 
be advisable to allow them to remain along- 
side for fear of bad weather. The engines 
are again worked, and with the assistance 
of the tugs the vessel is got off and pro- 
ceeds into port. Surveyors are called in to 
inspect the vessel. Some slight repairs are 
necessary; these are easily effected, the ves- 
sel reloads her cargo and then proceeds on 
her voyage. The Bill of Lading provides for 
York-Antwerp rules. 

When the vessel arrives at the port of 
discharge the owners place the accounts in 
the hands of the average adjuster, who 
makes a rough calculation of the probable 
amount of General Average. The following 
is an estimate of the expenses incurred : 

Costs of hire of lighters 500 

Costs of discharging cargo 500 

Costs of reloading cargo 500 

Costs of tugs 2,000 

Expenses of entering port 50 

Expenses of leaving port 50 

Wages and provisions during stay in 

port 100 

Then there may have .been damage to 
the cargo in discharge and reload- 
ing, and perhaps damage to the 
engines in getting off. These we 
estimate at 500 

4,200 



33 



Estimate of value. 
The value of the ship i s fixed at 50,000 

(in sound condition) 
Freight, less crews' wages and 

harbour expenses 5,000 

Cargo 45,000 



100,000 

The adjuster estimates that the General 
Average will amount to 5 per cent. 

The shipowner thereupon, before he de- 
livers up the cargo to the cargo owners, 
demands from each of them a deposit of 
5 per cent, on the value of their shipments. 
A deposit account is opened, generally in the 
names of the adjusters and the shipowners, 
and these deposits are placed to the credit 
of this account. Sometimes in lieu of taking 
a deposit the shipowner is satisfied to accept 
a guarantee from the cargo owners to pay 
any General Average contribution that may 
be found due on their cargo. The usual 
form of guarantee is that known as Lloyd's 
Average Bond, by which the owners of the 
cargo undertake to pay any contribution 
that may be found due in respect of their 
shipments and to .pay a deposit on account 
if they should be called upon to do so. The 
shipowner frequently insists upon this aver- 
age bond being also signed by the under- 
writer, so that in the event of the failure 
of the cargo owner before the General Aver- 
age statement is completed, he has a right 
nf claiming direct from the underwriter. 

If, during the process of discharging or 
reloading, the cargo, or any part of it, has 
become damaged, then such damage is allow- 
able in General Average, and when the claim 
ia presented to the underwriter for settle- 
ment, he notifies the average adjuster that 
he has paid the claim and requests tha>t any 
amount made good in respect of such 
damage should be placed to his credit in 
the General Average adjustment. When 
refunding General Average deposits, the 
underwriters generally notify the adjuster, 



39 



so that if, on completion of the statement, 
it should transpire that the de-posit collected 
is in excess of the amount actually required, 
the underwriter will be credited in the state- 
ment with any over-payment. 

PREPARATION OF STATEMENTS. 

Statements sometimes take a very long 
time in preparation, and I know of one case 
in which there ere about 1500 different ship- 
ments of cargo owned by 1500 different 
owners in which many of the shipments are 
damaged, and which damage will have to 
be made good in General Average. I am 
told by the adjuster that the statement will 
not be issued for about 2g years, and will 
occupy the attention, during the . whole of 
that time, of eight of his clerks. This is, of 
course, an unusually complicated General 
Average. It is to be borne in mind that 
the adjuster has to scrutinise carefully every 
claim put forward for damage to be made 
good in General Average, and see that the 
credit for any such sums is properly given 
to the right persons. 

When the adjustment is completed and 
shows the General Average contribution 
does not reach, in the case above-mentioned, 
five per cent., then the persons who have 
paid the deposits have refunded to them, 
out of the deposit account, the excess pay- 
ments made by them, and the balance of the 
deposit account is used for the payment of 
the various expenses that have been incurred 
for General Average purposes. 

If there 'has been no deposit paid then 
the shipowner, when the statement is com- 
pleted, will 'call upon the consignee to 
honour his bond and pay the General 
Average contribution on his goods. The 
assured, having paid General Average contri- 
bution, presents his claim to the underwriter 
for settlement. The underwriter's liability 
will depend upon whether or not the goods 
are fully insured. If the contributory value 
is in excess of the insured value, then the 



40 



underwriter only pays his pro rata share; 
if the goods have been damaged and the 
underwriter has been called upon to pay 
Particular Average, then, in estimating the 
amount for which he is liable for General 
Average, he is entitled to deduct from the 
insured, value the sum which he lias paid for 
Particular Average, end his liability for 
General Average will be based on the in- 
sured value less the Particular Average. 

Say, for example, the contributory value 
of goods is 2000 and the General Average 
contribution is 20, and the goods are in- 
sured for 2000. The goods, however, have 
been damaged and the underwriter, say, has 
paid for Particular Average 200, then the 
liability of the underwriter will be for one 
per cent, on the insured value of 2000 lees 
Particular Average 200, equal to 1800, 
viz. 18. The owner of the cargo would 
have to bear the difference between this 
18 and the amount which he had paid to 
the shipowner. 



TRIED LECTURE. 
Delivered January 14, 1921. 



SALVAGE CHARGES. 



Sue and Labour Charges. 



F.C. AND S. CLAUSE. 

In my last lecture I dealt with the sub- 
ject of General Average, indicating what is 
meant by a General Average Loss, such as 
jettison of cargo, damage to engines in 
getting a vessel off the ground, dam-age by 
water used to extinguish a fire, or the 
cutting away of ship's materials, such as a 
mast to ease the vessel when in a danger- 
ous position, and I also dealt with general 
average expenditure, such as the expenses 
incurred in discharging cargo to lighten the 
vessel and cost of reloading, and expenses 
incurred through putting into a pert of 
refuge. I explained that such damages anu 
expenses, being incurred for the common 
safety of all interested in the adventure, 
must be borne rateably by all the parties 
concerned, each in proportion to the values 
they have at stake. This evening I will deal 
with the question of salvage charges which, 
although of the like character to general 
average expenses, yet differs so far as re- 
gards the basis on which they are recover- 
able from the interested parties. 

LIABILITY OF INSURER. 

The Marine Insurance Act describes sal- 
vage charges as follows : 

Sect. 65, para. 1 : 

Subject to any express provisions in the 
Policy, salvage charges incurred in pre- 



42 



venting a loss by perils insured against 
may be recovered as a loss by those 
perils. 

Para. 2 : 

Salyage charges means the charges re- 
coverable under Maritime Law by a salvor 
independent of contract. They do not in- 
clude the expenses of services in the 
nature of salvage rendered by the 
assured or his agents or any person em- 
ployed for hire by them for the purpose 
of averting a peril insured against. Such 
expenses may be recovered as particular 
charges or as a general average loss, ac- 
cording to the circumstances under which 
they were incurred. 

It must be particularly noticed that in 
para. 1, the insurer is only liable for sal- 
vage charges incurred in preventing a loss 
by perils insured against. For instance, 
if a vessel was insured against the risk of 
collision only, the Underwriters would not 
be liable for salvage charges or even general 
average arising out of the stranding of the 
vessel, nor for salvage or general average 
occasioned by a war peril, if the war risk 
was excluded from the policy. In para. 2, 
the difference between a general ayerage 
and salyage is denned, for it is laid down 
in this paragraph that salvage charges are 
charges incurred independently of contract. 
General average arises out of the contract 
between the shipowner and shipper for 
carriage of his goods. Salvage charges are 
charges claimable by third parties, i.e., the 
salvors, not under any contract, but 
under Maritime Law. For example : 
Supposing a vessel is at sea and is in 
trouble owing to the machinery being dis- 
abled, and is in great danger and sends out 
A S.O.S. signal to vessels in the neighbour- 
hood for assistance. A vessel receiving her 
signal hurries to her assistance and tows 
her into port This is salvage, pure and 
simple. On the other hand, supposing the 
vessel i ashore, and the Master is able, 
through Lloyd's Agents or other sources, to 
get in touch with the owner or his agents, 
and these latter make arrangements with a 



43 



tugowner to send a tug to the help of his 
steamer, and they arrange to pay him so 
much a day for the services of the tug. 
These expenses being incurred under con- 
tract between the shipowner and tug, are 
not salvage charges, but charges of the 
nature of General Average. 

AN IMPORTANT DIFFERENCE. 
There is, further, this important differ- 
ence between these two classes of charges : 
Where, in the first-mentioned case, the 
vessel reaches port, the Master of the salv- 
ing vessel is entitled to claim salvage on 
the value of the ship ,and cargo at the port 
where his services end, and, further, he is 
entitled to have a lien on the ship and 
cargo at that port, and he will not release 
the vessel until he has received from the 
owner of the salved vessel a guarantee 
or bond or some form of security by which 
he will be able to collect any salvage money 
that subsequently he may be entitled to 
receive. The salvor is entited to claim in 
local Courts compensation for his services. 
For instance, supposing an English vessel 
tows an English ship into a French port. 
The owners of the salving steamer can have 
their claim adjudicated in the French 
Courts. It is becoming, however, the prac- 
tice in such a case .as this for the owner of 
the salving vessel to arrange with the owner 
of the salved ship to agree to have the 
claim settled in the English Courts or by 
arbitration, but, of course, the owner of the 
salving vessel will require security before 
releasing the steamer which has been 
salved. This security is often arranged 
between the two owners on this side, and 
if the matter is to 'be settled by arbitration, 
Lloyd's Salvage Agreement is often signed. 
Under this Agreement it is agreed that the 
Committee of Lloyd's shall appoint the 
Arbitrators. The Arbitrators selected by 
Lloyd's are generally well-known K.C.'s 
engaged at the Admiralty Bar. In due 
course, both sides, through their legal repre- 
sentatives, appear before the Arbitrators to 
state their case, and after consideration the 



Arbitrators issue their award. In deciding 
the sum to be paid, the Arbitrators take 
into account three items : (1) The immi- 
nence of the peril from -which the vessel 
has been saved. (2) The value of the 
property saved. (3) The value of the 
property engaged in the salving operations 
and risk run by the salving vessel. The 
example of salvage which >T have given you, 
as I have already said, is a case of pure 
salvage; there is no contract for salvage 
the steamer is, in effect, picked up at sea. 
I call this a " pure " salvage for this reason, 
that there can be no question but that such 
a salvage complies strictly with the rule I 
have quoted from the Marine Insurance 
Act. In the next example it is open to 
question whether it is strictly a case of 
" Salvage Charges," although it is 
commonly so called. A vessel is badly 
stranded and efforts to rescue her by local 
means are unsuccessful. The owner advises 
his Underwriters, and they, in their turn, 
place the matter in the hands of the 
Salvage Association. The Salvage Asso- 
ciation, like Lloyd's, has its ramifica- 
tions all over the world. It possesses 
branch offices at Cardiff and New York, 
and it has also an American Lakes De- 
partment. It is in touch with all the 
Salvage Companies, and when a casualty 
occurs and the matter is placed in their 
hands, they at once get in touch with their 
Agents or Lloyd's Agent and arrange for 
one of the Salvage Companies to proceed to 
the scene of the casualty. If the case is a 
difficult one they send one of their own 
Officers to the spot to watch the operations, 
and generally to protect Underwriters' in- 
terests. The terms on which these Salvors 
generally act is that known as the " no cure 
no pay " principle, i.e., no payment is made 
to the Salvor unless the salvage operations 
are successful and the vessel is saved. 
Lloyd's Salvage Agreement is generally 
accepted, although it is frequently agreed 
that Sir J. Lowrey, the well-known Secre- 
tary of the Salvage Association, is to decide 
what sum should be paid to the salvors. 



45 



CONSIDERATIONS FOR ARBITRATOR. 

In estimating the sum to be .paid, the 
Arbitrator has to bear in mind, in addition 
to the factors I have already mentioned, 
that it is a "no cure no ipay " contract; 
in other words, the salvor has run the risk 
of heavy expenses, which he would have 
had to bear himself if the operations had 
not 'been successful. If the salvor runs the 
risk of losing heavily if unsuccessful, he 
naturally expects to receive a handsome re- 
muneration if successful, for he has risked 
much and will expect much. It sometimes 
happens that after a time the salvor comes 
to the conclusion that it is impossible to 
save the ship, and abandons the operations. 
A new contract is then entered into for 
stripping the vessel, i.e., taking off the 
vessel all salvable articles, such, as winches, 
&c. A very important difference between 
general average and salvage lies in the fact 
that while general average is based on 
values at place of termination of the voyage, 
the values ifor salvage are based on values 
at the place where the services of the 
salvors terminate. 

The Sue and Labour charges provision 
reads as follows : 

And in case of any loss or Misfortune, 
it shall be lawful to the Assureds, their 
Factors, Servants, and Assigns, to sue, 
labour and travel for, in and about the 
Defence, Safeguard, and Recovery oif the 
said goods, Merchandizes, and Ship or 
Vessel, &c., or any part thereof, without 
prejudice to this assurance; To the 
Charges whereof the said Company will 
contribute, according to the Rate and 
Quantity of the sum herein assured. 

These are of a like nature to general 
average charges, but differ in this respect. 
In General Average there are two or more 
interests, otherwise the average could not 
be general. General Average may consist 
of sacrifice as well as expenditure. In 
Salvage there is no contract. In Sue and 
Labour there is a contract, and it is a con- 
tract for saving specific interests, i.e., it 



might be that the vessel is in ballast, or, 
even if it is a case of a vessel with cargo, 
there might be a separate contract for sav- 
ing the cargo and one for saving the ship. 
There is one fundamental difference between 
General Average charges and Salvage 
charges and Sue and Labour charges, and 
that is that Sue and Labour charges are 
paid by the Underwriter in full, even if the 
cargo or ship is under-insured, while in 
General Average or Salvage, if the value 
of the goods or ship is in excess of the 
value for which they are insured, the 
Underwriter only pays his pro rata share : 
Market value of ship, 15,000; General 
Average, 150; insured value, 10,000, pays 
100 and the same with goods. If, instead 
of General Average, the charges were Sue 
and Labour, the Underwriters would pay 
150. 

INTERESTING EXAMPLES. 

I once had a case before me winere a 
vessel was >ashore and ibadly damaged. The 
owner made a contract for a salvor to 
endeavour to save the ship. The salvor was 
successful, and we had to pay 100 per cent, 
for repairing the ship and 15 per cent, for 
charges under the Sue and Labour clause. 
The same principle applies if the Suing and 
Labouring are unsuccessful; these expenses, 
if properly incurred, would have to be paid 
in addition to a total loss. Supposing a 
vessel were ashore and no salvor would 
attempt salvage on a " no cure no pay " 
contract, but offered to send a tug in con- 
sideration of being paid so much per day. 
These expenses, 'being under contract, would 
have to be paid even if the vessel were not 
saved, and -would be recoverable from the 
Underwriters in addition to the total loss. 
The thought naturally arises, Why should 
Underwriters pay Sue and Labour charges 
on a different basis to Salvage and G 
Average Charges? The reply is to be found 
in tho clause itself, which reads : 

... To the charges whereof the said 

Company will contribute, according to the 

rate and quantity of the sum herein 

insured 



47 



and the view is confirmed by the well-known 
case of Aitchison v. Lorle, decided in 1876. 
This anomaly is rectified to some extent in 
the Institute Time Clauses, which provide 
for a division of these expenses in cases 
where the ship is not fully insured. 

Sir Joseph Lowrey has given me a list of 
the various salvage companies who have at 
one time or another acted for the Salvage 
Association. The list comprises the names of 
some fifty salvage companies who operate 
in their various spheres in different parts 
of the world. In England we have nearly 
twenty salvage companies operating off the 
coasts of the British Isles. The well-known 
Neptun Salvage Company, of Stockholm, 
one of the chief companies, operates in the 
Baltic, and the Svitzer Company, of Copen- 
hagen, operates in the Mediterranean, while 
the powerful Merritt's Salvage Company 
operates in American waters off the Atlantic 
Coast of the United States of America. 



MERITORIOUS SALVAGE. 

Many have been the highly meritorious 
salvages. To enumerate a few I would men- 
tion the P. & O. steamer Oceana sunk after 
collision off Beachy Head, where nearly 
700,000 of gold and silver were recovered 
by divers. The R. M. S. P. steamer Agadir 
stranded off Mazagan, North Africa. The 
salvors refused to attempt salvage on the 
" no cure no pay " terms, and arrange- 
ments were made for the Liverpool Salvage 
Association to send their steamer Linnet, 
which vessel subsequently floated the Agadir. 
The steamer Milwaukee stranded off the 
coast. In order to salve her it was found 
necessary to cut off her .bows. This was 
done by explosives. The remainder of the 
vessel was towed off, and a new bow was 
fitted to her in dry dock. I might 
add that the Salvage Association and the 
Liverpool Salvage Association are Under- 
writers' associations and are not commercial 
concerns, and do not work for profits. The 
management of these two Associations and 



48 



also that of the Glasgow Salvage Associa- 
tion is in the hands of Committees of 
Underwriters, the Officers of all three 
Associations being persons of well-known 
ability. The Liverpool Salvage Association 
owns salvage steamers, while the Salvage 
Association content themselves by simply 
owning a certain quantity of salvage plent. 

This concludes my remarks regarding 
General Average, Salvage, and Sue and 
Labour charges, -which remarks are some- 
what limited owing to time. 

THE F.C. AND S. CLAUSE. 

The F.C. and S. Clause reads as follows : 

Warranted free of capture, seizure, 
arrest, restraint, or detainment, and the 
consequences thereof or of any attempt 
thereat (piracy excepted) and also from 
all consequences of hostilities or warlike 
operations whether before or after 
declaration of war. 

As I have already explained, the words 
" warranted free of " mean that the 
policy or the Underwriter is not liable to 
pay for any loss arising out of the risks 
from which he is " warranted free of." 
If this clause is in the policy, the policy is 
said to be free of " war risk." The better 
view to take, however, is to say that with 
this clause in the policy the Underwriter is 
free of any claims arising from risks men- 
tioned in the policy if such risks arise from 
capture, seizure or detention, &c. Some may 
imagine that the deletion of this clause 
implies some additional risk which would 
not exist if the clause was not in the policy 
at all. They might think that the deletion 
of the clause makes the Underwriter re- 
sponsible for all risks arising out of hostili- 
ties. This is not so; you cannot exclude 
from the policy anything which is not con- 
tained therein, and, consequently, the dele- 
tion of the clause has the same effect as if 
a policy were issued which did not contain 
the clause. Let me explain. Among the 



49 

risks enumerated in the policy are men-of- 
war. These are eminently war risks and 
would be excluded by the F.C. and S. 
Clause. There are, however, other risks 
mentioned in the policy, such as Jettison, 
Fire, Strandings. If losses arising from 
these risks were occasioned by acts of hos- 
tilities, these would also be excluded by the 
F.C. and S. Clause. In order to make such 
losses war losses, they must have been 
caused by the imminence of the peril of 
warlike operations. 

" CONSEQUENCES " CONTROVERSY. 

Supposing a vessel had gold on board and 
was being pursued by enemy craft and the 
gold was thrown overboard to avoid its 
being captured. That jettison would be a 
war loss. Or supposing a ship was sel on 
fire by a shell from an enemy cruiser, that 
fire would be a war risk; or if a vessel was 
being chased by a submarine and was 
run aground, that grounding would be a 
war risk. There has been more controversy 
over the effect of the word " consequences '' 
in this clause than over any other clause 
at any other time. Take for example losses 
due to collision between two vessels sailing 
without lights. Acting under Admiralty in- 
structions, a breach of which would involve 
a Master in severe penalties, vessels had to 
proceed at nights without showing lights and 
solely in consequence thereof many collisions 
occurred and vessels were lost (thereby. The 
sailing without lights was without doubt due 
to the existence of war, and was for the 
purpose of avoiding, if possible, attacks by 
submarines. The loss of a vessel sunk by 
a submarine is, of course, a war loss, and 
would be recoverable under a policy as a 
loss caused by "men of war." The sailing 
without lights is merely taking precautions 
to avoid loss by " men of war." Should not, 
therefore, a loss arising solely by reasons of 
the precautions so taken be equally classed 
as a loss arising out of the consequences of 
hostilities? I suppose the man in the street 
would at once say " Yes," and perhaps the 



majority of people who are acquainted with 
Marine Insurance matters were of the 
same opinion. I, myself, thought so. 
They were wrong. The House of Lords 
lias set all doubts at rest by deciding in the 
case of the Petersham that such a col- 
lision is a Marine risk, and not a " war " 
risk. The reason being that the lose was 
not due to a warlike operation, the sailing 
without lights being merely a preventive 
action against a, possible hostile operation, 
and not the result of it. The result might 
possibly be different if there was evidence 
that a submarine was actually following. 



WAR CASES. 

This is merely one example of the many 
interesting cases affecting Marine insurance 
arising out of the war. I might add here 
that the French Courts on the whole are 
inclined to regard such a loss as a " war " 
loss. Now it is commonly supposed that the 
F.C. and S. Clause merely excludes from 
the policy only losses arising out of war 
operations. This is not so. The clause com- 
mences " warranted free of capture, 
seizure and detention." These three risks 
need not necessarily arise out of warlike 
operations. If it was intended to limit the 
clause to warlike operations it would not be 
necessary to mention these specific risks, for 
such losses could be recovered under the 
words " warlike operations." A vessel or 
her cargo might be seized for illicit trading, 
i.e., smuggling. Such a seizure would not 
be a warlike operation, but the loss would 
nevertheless not be recoverable because the 
policy is warranted free from seizure. This 
was decided in the case of Cory v. Burr in 
1883. The policy contains the words " Re- 
straint of Princes." Now " Restraint of 
Princes " need not necessarily be the out- 
come of a warlike operation. In Miller v. 
Law Accident Insurance Society, Ltd. 
(1903), where a vessel having on board a 
shipment of cattle arrived at Buenos Ayres 
but the authorities, owing to an outbreak 
of disease, refused to allow the cattle to 



51 

be landed, and they were transhipped to 
another steamer and were carried on to 
Montevideo, the assured claimed that this 
was a loss covered by a Marine policy in- 
cluding the F.C. and S. Clause, but the 
Court held that the loss was due to a risk 
of the nature of "Restraint of Princes," 
and that " Restraint of Princes " was one 
of the risks excluded from the F.C. and S 
Clause. 

SAILING WITHOUT LIGHTS. 

It is necessary, therefore, to bear in mind 
that the F.C. and S. Clause does no more 
than exclude from the Policy losses arising 
from risks mentioned in the Policy when 
such losses are the consequence of hostili- 
ties or warlike operations, and also, of 
course, losses arising from capture, seizxire 
or detention, &c. As an example of this I 
would quote another case of collision due 
to sailing without lights. The Saint Oswald 
was engaged by the Admiralty in the con- 
veyance of troops, while the Suffren was a 
man of war, and was naturally also occupied 
on warlike operations. The Saint Oswald 
was sunk, and the Courts held that the loss 
was recoverable as a " war " risk. There 
is in the opinion of the Courts a vital differ- 
ence between this case and the Petersham, 
and that difference lies in the fact that both 
the Saint Oswald and the Suffren were on 
warlike operations, while in the Petersham 
case the two vessels were merely engaged 
in an ordinary commercial enterprise. As 
the Saint Oswald and the Suffren were both 
engaged in warlike operations, and for the 
purpose of carrying out those operations it 
was necessary to sail without lights, then 
the collision being due to the sailing with- 
out lights, and the sailing without lights 
being part of the warlike operations, the 
consequential loss of the vessel was there- 
fore a loss due to the consequences of war- 
like operations. While the Courts have 
made the distinction between the two cases, 
and have therefore established the law on 
the point, yet there is considerable diver- 
sity of opinion as to the correctness of the 



52 



distinction so made. T.he principles I have 
enumerated with regard to the application 
of the F.C. and S. Clause apply equally to 
what is known as the strikes clause, which 
reads as follows : 

Warranted free of loss or damage caused 
by strikers locked out workmen or per- 
sons taking part in labour disturbances 
or riots or civil commotions. 

This clause excludes from the Policy any 
losses arising from risks mentioned in the 
Policy if such losses are due to strikes, 
riots, &c. The deletion of the clause does 
not import into the Policy any additional 
risks to those enumerated in the Policy. 
For instance, damage done by fire to goods 
by the action of strikers would be excluded 
if the strike clause were in the Policy, but 
the deletion of the clause would not render 
Underwriters liable for damage by strikers 
unless such damage were due to one of the 
risks mentioned in the Policy. 

POSITION OF UNDERWRITER. 

I repeat that you cannot exclude from 
the policy something which does not exist 
therein. The risks covered by the policy are 
enumerated therein, and the deletion of the 
strikes clause does not a/dd to the risks 
specified in the policy. The inclusion of the 
strikes clause means that if any of these 
risks are the work of strikers, then the 
policy does not pay losses arising therefrom. 
To make the matter quite clear, let us sup- 
pose that a policy is issued covering the risk 
of loss by fire, and the " strikes " clause 
is in the policy. The policy would cover all 
risks by fire except those caused by 
" strikers, locked-out workmen, &c." If the 
" strike " clause is deleted you have simply 
a policy covering the risk of fire and nothing 
more. I have rather laboured this point 
because it is one of great importance, and 
there is an impression that if an additional 
premium is paid to cancel the strikes clause 
the Underwriter is liable for losses arising 
from the action of strikers, however caused, 
which is not the case. 



53 



The British and Allied Capture Clause can 
be dealt with very shortly. The clause 
reads as follows : 

But this policy is warranted free of any 
claim arising from capture, seizure, arrest, 
restraint, or detainment, except by the 
enemies of Great Britain or by the ene- 
mies of the country to which the Assured 
or the ship belongs. 

The introduction of the clause was due to 
an effort to make the blockade against Ger- 
many effective. Of course, no Britisher 
would attempt to insure goods to Germany, 
but frequently goods were shipped to 
Neutral countries, ostensibly for consump- 
tion in those countries, but which were, in 
reality, shipped to those countries merely 
for forwarding to Germany. This was spe- 
cially the case of goods shipped to Holland, 
Sweden, &c. The English market being the 
paramount insurance market of the world, 
such goods, to a large extent, were insured 
through the agencies of English companies, 
and if the goods happened to be captured 
by any of the Allied countries the holders 
of such policies could proceed against the 
agents of the English companies in the 
countries where the agencies were estab- 
lished, and could claim a total loss. In 
order to deprive, as far as possible, the 
agents of Germany from facilities for in- 
surance, this clause was inserted in British 
policies, so that in Neutral or Allied coun- 
tries the holder of such a policy could not 
recover for goods capture'd or seized by 
British or Allied authorities. 



FOURTH LECTURE. 

Delivered February 8, 1921. 



HULL POLICIES. 



CLAUSES RELATING THERETO. 

In dealing with claims on hull policies, I 
propose to base my remarks for the greater 
part on the usual form of Institute Time 
Clauses. These clauses are those most 
common in use. Some owners use their 
own particular clauses, which, however, in- 
clude many of the clauses contained in the 
Institute form, and do not differ much from 
the Institute Time Clauses except perhaps 
in regard to the franchise clause. In con- 
sidering claims on hull policies one must 
bear in mind that ships are not like produce 
and goods. The latter are intended for 
sale, while ships are built for the purpose 
of transporting the produce and goods and 
so earning freight for their owners. There- 
fore, in calculating a claim for particular 
average 011 ship there is no comparison be- 
tween the sound and damaiged values for 
ascertaining the depreciation. A particular 
average on ship is the cost of repairing the 
damage sustained. In the absence of any 
clause in the policy regarding average, 
claims on ships would be subject to the 
memorandum which reads as follows : 

The ship and freight are warranted free 

from average under three pounds per 

cent, unless general or the ship be 

stranded. 

The memorandum is, however, now obsolete. 
The policy always contains a special aver- 
age, or, as one may call it, a special franchise 
clause. The average or franchise clause 
in the Institute Time Clauses reads as 
follows : 



56 



Warranted free from particular aver- 
age under 3 per cent, but nevertheless 
when the vessel shall have been stranded, 
sunk, on fire, or in collision with any 
other ship or vessel, Underwriters shall 
pay the damage occasioned thereby, and 
the expense of sighting the bottom after 
stranding shall be paid, if reasonably in- 
curred, even if no damage be found. 

A short explanation regarding the words 
"stranded, sunk, on fire or in collision" is 
perhaps desirable. 



MEANING OF "STRANDED." 

The literal meaning of the word 
"stranded " is that the vessel must be cast 
on the strand or shore, but a vessel is 
equally said to be stranded if she acci- 
dentally grounds on a boulder or iwreck or 
some other obstruction. It is quite im- 
material whether or not the vessel sustains 
much, little or even no damage ; such would 
be a strand within the meaning of the 
word in the policy. A mere touching of 
the obstruction would not be a strand, the 
vessel must remain on the obstruction for 
an appreciable time a mere " touch and 
go " is not a strand. No definite period can 
be fixed. In one case a vessel remained a 
minute and a half that was held not to be 
a strand. On the other hand, if a vessel 
grounds in her berth where it is usual for 
vessels to ground at low water and float 
with the rising tide, such grounding, being 
usual and not accidental, -would not be 
deemed to be a strand. Clause 15 of the 
Institute Time Clauses provides that : 

Grounding in the Panama Canal, Suez 
Canal or in the Manchester Ship Canal 
or its connections, or in the River Mersey 
above Rock Ferry Slip, or in the River 
Plate (above Buenos Ayres) or its tribu- 
taries, or in the Danube, Demerera, or 
Bilbao River, or on the Yenikale or 
Bilbao Bar, shall not be deemed to be a 
stranding. 



67 



The reason for the insertion of this clause 
is that vessels frequently ground in these 
localities because of the lowness of the 
water or the narrow channel ways. It is 
not, of course, intended that they should 
ground, but a very slight deviation may 
take a vessel out of the channel and cause 
her to ground. If Clause 15 is not in the 
policy then the grounding in the localities 
mentioned would be subject to ordinary test 
to ascertain whether such were " strand- 
ings." The word " sunk " means an actual 
immersion of the vessel in the water, not 
necessarily a resting on the bed of the 
ocean, for a vessel laden with timber might 
sink and still float on her cargo pertly sub- 
merged. The word " fire " needs no ex- 
planation. Underwriters pay for all 
damage caused by fire. If instead of 
" fire " the word " burnt " appears in an 
average clause on ship, the burning must 
be of a substantial character with an actual 
destruction of part of the ship herself. The 
Glenlivet Steamship Company v. Titcombe. 
(Court of Appeal, 1893.) 

SUBTLETIES OF COLLISION LAW. 

In the clause quoted, the word " collision" 
is followed by the words " with any other 
ship or vessel." The addition of these 
words is perhaps unnecessary, because in 
a Marine Insurance policy the word " col- 
lision " when not qualified means collision 
with another ship or vessel. (Richardson v. 
Burrows.) It does not include collision with 
a pier, quay or such like stationary object. 
A vessel within the meaning of this clause 
need not necessarily be a body used solely 
for navigation, such as barges, ships, &c., 
but rather a body that can be navigated 
for instance, an elevator used in discharging 
or loading cargo may be a vessel if it is 
not a fixed object, but one that can be 
moved from one place in a harbour to 
another. Also a vessel which has been sunk 
may be deemed to be a vessel if it can 
be shown that she could have been raised and 
repaired. (Chandler v. Blogg, 1897.) A case 



58 



recently came before me where a steamer 
collided with a steamer which had been 
sunk and damaged her. The sunken 
steamer was, at the time, in the hands of 
the salvors, who helped to raise her, and 
it was claimed that the collision had caused 
such extra damage to the sunken steamer 
that the salvors gave up all hope of saving 
the vessel. The Courts, after hearing expert 
advice, came to the conclusion that the 
damage done by the second collision did not 
prevent the saving of the vessel as she was 
unsalvable before the collision took place. 
This second collision was not, therefore, a 
collision with a ship but with a wreck, and 
would not have been a collision within the 
meaning of the word as used in the policy. 
If, on the other hand, the Courts had come 
to the conclusion that the vessel could have 
been raised as a vessel, the collision would 
have come within the definition of a 
" collision." Contact with a ship's cable 
would be a collision because the cable is 
considered part of the ship. A vessel was 
moored away from a quay with her mooring 
ropes carried to the bollards on the quay. 
A tug passing between the quay and the 
vessel had her funnel damaged by coming 
into contact with the mooring ropes. This 
was a collision within the meaning of the 
clause. In the clause I have quoted above 
you will notice that the Underwriter agrees 
to pay for damage caused by stranding, &c., 
even if it does not amount to 3 per cent., 
and he will pay the cost of drydocking the 
vessel after stranding for examination, if 
reasonably incurred, even if no damage be 
found. This latter part of the clause is 
inserted because the clause, in referring to 
stranding, only provides for payment of 
damage caused by stranding, and if no 
damage occurs the Underwriter would not 
be liable for drydocking expenses, but for 
the special agreement to pay such expenses. 
In some ship policies, however, the franchise 
clause follows in some respects the old cargo 
F.P.A. clause, inasmuch as the breaking of 
the warranty lets in all damage arising from 
perils insured against even if the damage 



59 



does not arise from the accident which 
breaks the warranty. In such a clause a 
stranding, &c., will bring in all heavy 
weather damage, although both stranding 
and heavy weather damage is below the 3 
per cent., while the Institute Clause makes 
Underwriters liable for stranding, &c., 
damage although not 3 per cent., but will 
exclude heavy weather damage if the total 
claim for both stranding and heavy weather 
damage is below 3 per cent. 

DESCRIPTION OF SUBJECT MATTER. 

The method of describing the subject 
matter insured in a policy on ship differs, 
but a fairly general description is : 

Hull and materials valued at ... 
Machinery and boilers and 'bunker 
coals and stores valued at 



In order to lower the franchise for the 
benefit of the assured, it is customary to 
insert two valuations in a policy on a 
steamer, one being the value of the hull and 
the other being the value of the machinery. 
In vessels which have some of their holds 
insulated for the purpose of carrying meat, 
&c., there is sometimes a third valuation, 
that of the insulation >and refrigerating 
machinery. In passenger vessels there is 
occasionally another valuation, viz., that of 
cabin fittings. Clause 12 provides that 
donkey 'boilers, winches, &c., shall be deemed 
to be part of the hull and not part of the 
machinery. Clause No. 11 deals with these 
separate valuations as follows : 

Average payable on each valuation 
separately or on the whole without deduc- 
tion of thirds, new for old, whether the 
average be particular or general. 

A similar clause appears in nearly all hull 
policies where separate valuations are in- 
serted. If the damage on the hull alone 
leaches the franchise on the hull valuation, 
the Underwriter pays the damage to the 



hull. A similar remark applies to the other 
valuations. If the damage on one valuation 
is under the franchise on that valuation, 
and the darr.age on the other is above the 
franchise and both damages together reach 
the franchise on the whole valuation, then 
the whole damage is recoverable, although 
one valuation may be under the franchise. 
For example : Hull 10,000, machinery 8000, 
total 18,000; hull 200 not recoverable 
(under 3 per cent.), machinery 300 recover- 
able (over 3 per cent.), total 500 (under 
3 per cent, on whole valuation) ; hull 1200, 
machinery 400, total 600 (over 3 per cent.) 
both recoverable. Even if the words "or 
on the whole " were not inserted in the 
clause, the claim of 600 would be recover- 
able. The reason for this is that the separate 
valuations are inserted for the benefit of 
the assured, and, therefore, if a claim would 
be recoverable if there were only one valua- 
tion instead of two or three, it cannot be 
excluded by reason of the clause to pay 
average on each valuation. It is an im- 
portant principle to bear in mind that a 
clause which has been inserted for the benefit 
of an assured is intended to give him a better 
insurance than he would have if the clause 
were not inserted, and consequently you 
cannot place him in a worse position than 
if the clause had not been inserted. Mr. 
McArtliur, a great authority on Marine In- 
surance Law and Practice, says : 

As Clauses of this kind are inserted for 
the benefit of the assured, they may not 
be construed to his disadvantage so as 
to deprive him of any right he would have 
possessed without them. 

I draw attention to this point because 
I once had a claim before me where there 
were three valuations, say, for example : 
Hull valued 50,000, machinery valued 
35,000, insulation valued 5000, total 
90,000. 

The insulation was damaged and cost 
6000 to repair. Some of the Underwriters 



61 



considered that as the insulation was valued 
at 5000 this sum was the extent of their 
liability. This is not so. If, instead of 
three valuations there had only been one, 
that is " steamer valued at 90,000," it 
would not have been open to them to raise 
such a point. The damage being 6000 
and over 3 per cent, they would have paid 
the claim without hesitation. 



APPLICATION OF PRINCIPLE. 

Applying the principle I have just quotea, 
if the Underwriters would have paid had 
there been only one valuation, they must 
also be liable although there were three 
valuations, the three valuations being in- 
serted in the policy for the benefit of the 
assured and not for the benefit of the 
Underwriter. This clause also provides that 
Mie average is to be paid without deduc- 
tion of thirds, new for old. In the days 
of wooden ships, when a vessel sustained 
damage, it used to be the rule to deduct 
from the cost of repairs a certain percent- 
age supposed to represent the improve- 
ment to the vessel by reason of the 
repairs, the law being that a policy of 
insurance is a contract of indemnity and 
that an assured must not be better off by 
reason of his vessel having sustained damage 
and being repaired at Underwriters' ex- 
pense. This deduction did not apply to 
a new vessel on her maiden voyage. This 
so-called improvement was fixed at one- 
third, and while it may have been equit- 
able in wooden vessels, it was not so as 
regards iron ships, and modifications were 
subsequently made and sometimes sixths in- 
stead of thirds were deducted, or the de- 
ductions were abolished altogether accord- 
ing to circumstances. Now this rule is prac- 
tically non-existent as regards steamers so 
far as concerns average, Iby the inser- 
tion in hull policies of the clause 
quoted above. The rule, however, still 
exists in connection with General Average 
repairs. The reason, I suppose, being that 
while Underwriters may, if they choose, give 



62 



up any rights to insist on a deduction, 
there is no reason why owners of cargo who 
have to pay a share of the General Average 
sacrifice of ship should do so too. Reference 
to the York-Antwerp Rules will show what 
deductions are to .be made from General 
Average repairs. The amount to be de- 
ducted depends upon the age of the vessel 
or on the materials sacrificed. Up to one 
year no deduction is made in repairs to 
iron vessels. If over one year then some 
repairs are subject to a deduction of one- 
third, some to one-sixth and other repairs 
ere made good without deduction, and so 
on. The parts of the ship more liable to 
deterioration have the greater deduction. 
The Underwriter, having by the clause, 
waived his right to deduct thirds in' par- 
ticular average claims, agrees further to 
pay the thirds or sixths that are deducted 
from the General Average repairs. For 
example. Supposing General Average repairs 
amount to 300, and the Adjuster deducts 
one-third new for old, i.e., 100. There 
would be a sum of 200 to be allowed in 
General Average. This 200 would be 
charged against the ship, cargo and freight. 
The Underwriter on ship would pay the 
share chargeable to the ship, and, in addi- 
tion, would pay the one-third deducted, viz., 
100. It is only natural that the Under- 
writer should do this because the assured is 
entitled to call upon him to pay direct the 
whole of the general average repairs in the 
same way as he pays the particular average 
repairs. This principle was laid down in 
the case of Dickinson v. Jardine (1868), 
where Underwriters were held liable to pay 
direct a loss by jettison, although such loss 
was a General Average sacrifice. The 
Underwriter could not, therefore, with 
reason pay Particular Average repairs in 
full and General Average repairs under de- 
duction. If he pays the General Average 
repairs direct then he receives credit for 
the amount collected ifrom cargo and freight 
a s their share of the General Average sacri- 
fice, and such share would be diminished by 
the deduction of thirds, &c. 



63 



THE VOYAGE CLAUSE. 

Closely connected with the Franchise 
Clause is the voyage clause (No. 16). The 
Franchise Clause, i.e., the 3 per cent, 
clause, is applicable to each voyage, i.e., 
the damage, in order to fee recoverable, 
must reach 3 per cent, on each voyage, and 
not 3 per cent, during the whole period of 
the policy. What is a voyage? Voyage, 
as we should define it, probably would be 
the setting ooit, say, from this country to 
another country, or in the case of a coastal 
voyage, the sailing, say, from the Tyne to 
Liverpool; sometimes we speak of an out 
or home voyage, i.e., a voyage out from 
this country and back to this country. In 
order to avoid any dispute as to what is or 
what is not a voyage the following clause 
has been inserted in the Institute Time 
Clauses : 

The warranty and conditions as to aver- 
age under 3 per cent, to be applicable to 
each voyage as if separately insured, and 
a voyage shall be deemed to commence 
at one of the following periods to be 
selected by the Assured when making up 
the claim, viz., at any time at which the 
vessel (1) begins to load cargo, or (2) sails 
in ballast to a loading port. Such voyage 
shall be deemed to continue during the 
ensuing period until either she has made 
one outward and one homeward passage 
(including an intermediate ballast pas- 
sage if made) or has carried and dis- 
charged two cargoes whichever may first 
happen, and, further, in either case, until 
she begins to load a subsequent cargo or 
sails in ballast for a loading port. When 
the vessel sails in ballast to effect dam- 
age repair such sailing shall not be 
deemed to be a sailing for a loading port 
although she loads at the repairing port. 
In calculating the 3 per cent, above re- 
ferred to, particular average occurring 
outside the period covered by this Policy 
may be added to particular average 
occurring within such period provided it 
occur upon the same voyage (as above 



64 



defined), but only that portion of the 
claim arising within such period shall be 
recoverable hereon. The commencement 
of a voyage shall not be so fixed as to 
overlap another voyage on which a claim 
is made on this or the preceding Policy. 

This clause is a very liberal definition of 
a voyage, and under it a voyage such as 
the following would be deemed to be a 
voyage within the meaning of this clause. 
A vessel leaves Antwerp in ballast for 
London, loads a cargo there for South 
Africa, leaves South Africa in ballast for 
Australia, where she loads for the West 
Coast of South America, and the voyage 
continues from the time she leaves Antwerp 
until she has discharged her cargo at the 
ports on the West Coast of South America 
and until she loads a fresh cargo or sails in 
ballast to a loading port. This voyage, 
it is obvious, would take several months, 
and may be called a very long voyage. On 
the other hand, the same rule would apply 
to a short coasting voyage, say, a vessel 
left Middlesbrough in ballast for the Tyne 
to load for London, thence proceeds to 
Southampton and loads for Liverpool; the 
voyage would end when she commenced to 
load another cargo at Liverpool or left 
Liverpool in ballast to another port. This 
voyage would take less weeks than the 
other voyage would months. It frequently 
happens that at the date of the expiry of 
a Time Policy the vessel is on a voyage, 
and may have already sustained some dam- 
age which does not reach the fran- 
chise. She may perhaps sustain further 
damage during the remainder of the voyage, 
which damage would not, of course, be 
recoverable under the expired policy but 
would attach to the succeeding policy. If 
the damage on the whole voyage exceeds 
the franchise then by this clause both sets 
of Underwriters agree to pay the propor- 
tion of damage occurring during the cur- 
rency of the policy issued by them, although 
it does not reach 3 per cent, on the part 
of the voyage covered thereunder. Suppos- 
ing a vessel is insured from Jan. 1, 1920, to 



65 



Dec. 31, 1920, and the next policy runs from 
Jan. 1, 1921, to Dec. 31, 1921. The vessel 
is valued at 20,000. She starts on a voyage 
from the United Kingdom to India and 
back on Dec. 1, 1920, and arrives back on 
March 31, 1921. If the damage sustained 
between Nov. 1, 1920, and Dec. 31, 1920, 
and between Jan. 1, 1921, and March 31, 
1921, exceeds 3 per cent., then the whole 
damage is recoverable, each set of policies 
paying the damage which occurred during 
the period covered thereby. 

Before leaving the subject of the 3 per 
cent, franchise, I would point out that it 
is very important to bear in mind that the 
clause refers to particular average only, and 
in no way concerns general average. The 
averages >are quite distinct, and general 
average damage cannot be added to par- 
ticular average to make up the 3 per cent, 
franchise. (Price v. A.I Ships Small 
Damage Association, 1889,) General aver- 
age is recoverable irrespective of franchise, 
and although a general average sacrifice 
gives rise to a contribution by the other 
parties interested, yet the shipowner, as I 
have already mentioned, if part of his vessel 
has been sacrificed, or the cargo owner if 
his interest has been sacrificed, has the 
right to claim such sacrifice direct 
from his Underwriter, the Underwriter 
receiving credit in due course for the 
contribution due from other parties. For 
instance, an anchor is let go to bring up a 
vessel that is drifting ashore and the cable 
parts and the anchor and cable are lost; 
Such a loss is a general average loss and 
is recoverable from the Underwriter even 
if under 3 per cent. If in addition the 
vessel sustained heavy weather damage 
which in itself was under 3 per cent., but 
with the loss of cable and anchor would 
increase the claim to over 3 per cent., the 
heavy weather damage would not be 
recovera-ble. In dealing with this franchise 
clause there is another important fact to 
be borne in mind, viz., that the expenses 
which may be taken into account in ascer- 
taining whether the claim reaches the 



66 



necessary franchise are expenses neces- 
sarily incurred to repair the damage. 

It goes without saying that the actual re- 
pairs will be one af the items, other items 
would be the costs of proceeding into and 
coming out of dry dock, pilotage charges, 
if incurred, and so on. Surveyors' fees, 
Average Adjusters' fees, &c., would not be 
included. The same remarks would apply 
to a cargo claim. If the actual damage, 
exclusive of survey fees, did not reach the 
franchise, then the damage would not be 
recoverable, and further, if the claim is 
not recoverable, neither will these extra 
charges be recoverable. This does not, of 
course, apply to the fees of a Surveyor em- 
ployed by the Underwriters, as they, having 
employed him, would have to pay his 
charges. 

SURVEY AND TENDER CLAUSE. 

Survey and Tender Clause No. 20 reads as 
follows : 

In the event of accident whereby loss 
or damage may result in a claim under 
this policy, notice shall be given in writ- 
ing to the Underwriters, where practic- 
able, and, if abroad, to nearest Lloyd's 
Agent, also, prior to survey, so that they 
may appoint their own Surveyor if they 
do desire; and whenever the extent of 
the damage is ascertainable, the Under- 
writers may take or may require the 
assured to take tenders for the repair 
of such damage. In cases where a tender 
is accepted by or with the approval of 
Underwriters, the Underwriters will make 
an allowance at the rate of 30 per cent, 
per annum on the insured value for the 
time actually lost in waiting for tenders. 
In the event of the assured failing to 
comply with the conditions of the clause, 
15 per cent, shall be deducted from the 
amount of the ascertained claim. 

This clause provides that in the event 
of damage, advice is to be given to the 
Underwriters so that they may appoint a 



67 



Surveyor. When notice is given to the 
Underwriter he usually instructs the brokers 
to advise the Salvage Association, who in 
their turn appoint one of their Surveyors 
to survey on Underwriters' behalf. This 
Surveyor, in conjunction with the Surveyor 
appointed by the owner, surveys and agrees 
the damage with the owners' Surveyor and 
agrees also as to the method of repair. 
The Underwriters' Surveyor reports fully 
to the Salvage Association. If the damage 
is extensive the Underwriters have the right 
to call for tenders for repairs. The method 
usually adopted is for both Surveyors to 
draw up a specification of the necessary 
repairs and submit same to various ship- 
repairers asking for their prices for effect- 
ing repairs according to specification, and 
in what time they will undertake to carry 
out the repairs. This will, of course, cause 
some delay in commencing the repairs, ap 
the repairers will require some time to 
make out their calculations to see for what 
sum they can undertake the work. A 
specified time for sending in tenders is 
mentioned in the specification, and when 
the tenders are received they are examined 
and it is then agreed between owners and 
Underwriters, through the Salvage Asso- 
ciation, which tender shall be accepted. 

Tenders are, as a rule, the best mode of 
getting repairs effected at the lowest cost. 
Another method of effecting a large repair 
is on what is known as a " percentage " 
basis, i.e., the repairers undertake to charge 
only the actual amount expended by them 
in the repairs, plus a percentage for estab- 
lishment charges, such as office work, rent 
of dock, &c., and a percentage on all charges 
by way of profit. 

POSITION OF UNDERWRITERS. 

In the event of the owner agreeing to 
repair by way of tender, the Underwriters 
agree to pay him at the rate of 30 per cent, 
per annum on the insured value for the time 
actually lost in waiting for tenders. If, 



68 



however, 'he fells to give notice of damage 
to Underwriters or refuses to call for 
tenders, then the Underwriters are entitled 
to deduct 15 per cent, from the amount 
of the ascertained claim. The General 
Average Clause No. 9 reads as follows : 

General Average and salvage to be 
adjusted according to the law and practice 
obtaining at the place where the adventure 
ends, as if the contract of affreightment 
contained no special terms upon the sub- 
ject; or if the contract of affreightment so 
provides, according to York-Antwerp 
Rules, or in the case of "wood cargoes, 
York-Antwerp Rules omitting the first 
word of Rule I. (" No "), but, in all other 
matters not specifically referred to in 
York-Antwerp Rules I. to XVII. inclusive, 
the adjustment shall be in accordance with 
the law and practice obtaining at the place 
where the adventure ends, and as if the 
contract of affreightment contained no 
special terms upon the subject. 

This clause states the basis on which the 
Underwriters agree to pay General Average. 
While it may be open to a shipowner to 
insert in the contract of affreightment a 
general average clause inconsistent with 
York-Antwerp Rules, or with the law at port 
of destination, the can only recover under the 
policy General Average in accordance with 
the clause inserted in the policy. He can 
recover General Average as per law and 
practice at port of destination, or as per 
York-Antwerp Rules if in accordance with 
the contract of affreightment, but in the 
latter event he can recover, in addition, any 
items allowable by the law and practice at 
port of destination if such items are not 
already specified in York-Antwerp Rules. 

For example, according to American 
law, when a Master decides to seek a port of 
refuge, there is allowed in General Average 
the cost of bearing away to the port of 
refuge, i.e., coals, engine stores, &c., con- 
sumed in the operation. The Underwriter, 
by this clause, agrees to pay his share of 
such allowance, because there is no reference 



in York-Antwerp Rules to this particular 
matter. On the other hand according to the 
law of some foreign countries the ship only 
contributes on one-half of her value. York- 
Antwerp Rule No. 17 provides for contribu- 
tion on her actual value, therefore accord- 
ing to the clause, if the General Average 
is according to the York-Antwerp Rules, the 
Underwriter will not pay in this respect 
according to foreign law because the ques- 
tion of value is specifically dealt with in 
Clause No. 17 of York-Antwerp iRules. A 
short explanation is required with regard 
to Rule No. 1. This rule reads : 

No jettison of deck cargo shall be made 
good in General Average. 

JETTISON OF DECK LOAD. 

According to English Law jettison of 
deckload is allowable in General Average 
in those trades where it is customary to 
carry deck cargoes. For instance, ships 
engaged in the Timber Trade nearly always 
carry some deck cargo. If part of this deck- 
load is jettisoned for the safety of the vessel 
and her remaining cargo, the loss is ad- 
missible in General Average. Underwriters 
agree, therefore, in the case of wood cargoes 
that jettison of deckload shall be allowed in 
General Average, and they do this by in- 
serting in the General Average clause the 
words : 

In the case of wood cargoes York- 
Antwerp Rules omitting the first word of 
Rule No. 1 (No). 

I would here refer to Clause No. 14, which 
states : 

No claim shall in any case be allowed 
in respect of scraping or painting the 
vessel's bottom. 

Vessels have to be scraped and painted 
periodically owing to the vessel's bottom 
plating becoming foul, and to the deteriora- 
tion of the paint. Scraping and painting 
become, therefore, an ordinary charge, and 
when a vessel strands and damages her 
paint, if Underwriters paid for repainting, 



70 



the owners might be relieved of this ordi- 
nary charge. The clause often operates 
hardly on owners, for it might sometimes 
happens that a vessel strands shortly after 
having been painted and the clause throws 
upon the owner the cost of repainting her 
although such repainting has been caused 
solely by an accident. In some General 
Average statements, chiefly foreign General 
Average statements, there is sometimes 
allowed part of the cost of repainting after 
stranding, on the ground that in pulling the 
vessel off the ground the paint has been 
damaged. Even if allowed in general 
average the painting would not be recover- 
able in view of this clause. 

LATENT DEFECTS. 

I now come to Clause No. 8, which is 
known as the " Latent Defect " clause and 
also as the " Inchmaree " clause. It is 
called the " Inchmaree " clause as its origin 
arose out of a decision in favour of Under- 
writers in regard to a claim on a vessel 
called the Inchmaree (Hamilton v. Fraser). 
The claim arose out of the bursting of an 
air chamber of a donkey pump owing to a 
valve being closed. The closing of the valve 
was either accidental or due to the negli- 
gence of an engineer. The Court held that 
the damage was not due to a peril covered 
by the policy. This clause reads as follows : 
This insurance also specially to cover 
(subject to the free of average warranty) 
loss of, or demage to hull or machinery 
directly caused by accidents in loading, 
discharging or handling cargo, or caused 
through the negligence of Master, Mari- 
ners, Engineers or Pilots, or through ex- 
plosions, bursting of boilers, breakage of 
shafts, or through any latent defect in 
the machinery or hull, provided such loss 
or damage has not resulted from want of 
due diligence by the owners of the ship 
or any of them, or by the Manager, 
Masters, Mates, Engineers, Pilots or crew 
not to bo considered as part owners within 
the meaning of this clause should they 
hold shares in the steamer. 



71 



A latent defect is a flaw in the material 
due to faulty manufacture. This flew is not 
observable from the outside, but when the 
article is subjected to the ordinary stress 
and strains the flaw develops and eventually 
becomes patent and renders the article use- 
less for its intended purpose. The " latent 
defect " clause therefore adds to the risks 
covered by the policy; it makes the Under- 
writer liable for the effects of latent defects. 
If, owing to a latent defect, a piston rod 
broke and smashed the cylinder, the Under- 
writer would have to pay. The damage is 
not due to a sea peril, but to a latent defect. 
The Underwriter also has to pay for damage 
to the ship caused by the .negligence of the 
crew. If owing to negligence the Engineer 
fails to see that there is a proper supply of 
water in the boiler .and the furnace crowns 
in consequence get unduly heated and 
buckle, that is a loss due to negligence of 
the Engineer and not to a sea peril. The 
Underwriter, however, has to pay under this 
clause. It must not be assumed that if this 
clause were not in the policy Underwriters 
would be free of ell damage to the ship 
caused by the negligence o,f the Master, 
Mariners, &c. The clause, as I have said, 
adds to the risks covered by the policy, and 
its absence does not remove from the policy 
any of the risks mentioned in the body of 
the policy, viz., the ordinary sea perils. If, 
owing to the negligence of the Master, the 
vessel strands or comes into collision, the 
Underwriter would have to pay the damages 
caused thereby, as the causa proxima of the 
loss would be stranding, collision, &c. risks 
covered under the heading of perils of the 
sea. The clause also provides that if by 
the exercise of proper supervision the defect 
would have been previously detected, any 
loss would amount to a want of due dili- 
gence on the part of the Owner, and Under- 
writers would not be liable. 

The clause further provides for payment 
of damages to the vessel caused in loading, 
discharging or handling the cargo. Such 
damages are obviously not necessarily 
damages due to sea perils, but under the 



72 



clause Underwriters agree to pay all such 
damages. It must be borne in mind that 
claims under this clause are subject to the 
3 per cent. Franchise Clause. The damage 
under this clause would be particular 
average, and if it is under 3 per cent, it 
would not be recoverable. If, however, other 
damage has occurred due to another peril 
covered by the policy, and both damages 
together exceed 3 per cent., the whole will 
be recoverable. 

OTHER CLAUSES 

There are other sets of clauses issued by 
the London Institute in connection with in- 
surances on hulls to which I would briefly 
refer. (1) Excess 3 per cent. Particular 
Average. This clause takes the place of the 
Franchise Clause which I quoted earlier in 
my lecture. There is only one valuation 
and claims for particular average are paid 
in excess of 3 per cent., the owner being 
his own Underwriter for 3 per cent, 
of any particular average damage 
sustained by a peril covered under 
the policy. (2) F.P.A. Absolutely. This 
policy does not pay for particular average 
damage, but the owner can recover certain 
damages to hull and machinery if same are 
allowed in general average. (3) F.O.D. 
Absolutely. The Underwriter under these 
clauses does not pay any damage caused 
to the steamer, either of a particular 
average or of a general average character. 
In so far as they can apply those 
of the ordinary Institute Time clauses are 
included. There are still further sets of 
clauses issued by the Institute in connection 
with hull policies, but I have dealt with 
those most commonly in use, and time will 
not permit me to deal with the remainder. 



FIFTH LECTURE. 
Delivered February 15, 1921. 



ABANDONMENT. 



TOTAL AND CONSTRUCTIVE 
LOSSES. 

Total loss, as the words imply, means 
that the subject matter insured is lost, not 
necessarily absolutely so lost that not a 
fragment remains, but that it has lost its 
identity as the object insured. For in- 
stance, a vessel is stranded; she (breaks up 
end what is left is merely the keel and ribs 
of the vessel and perhaps a few plates 
clinging to them. In such a condition the 
remains of the vessel can no longer be called 
a ship they are the remains of the ship 
and ere designated as a wreck. The same 
remark applies to cargo. For example, 
Roux v. Salvador, where hides were so badly 
damaged by sea water that the Master of 
the ship, which had put into an inter- 
mediate port, decided to discharge them 
and sell them. The Court held that if they 
had been carried on to destinetion they 
could not have been delivered as hides but 
as a putrefied mass. Underwriters had to 
pay a total loss. 

C.T.L.; this differs from a " tobal loss" 
in this respect; the vessel by the accident 
has not been so utterly destroyed that she 
cannot be called a " ship." She is very 
badly damaged, tut the question is whether 
she can be restored to a similar condition 
as that in which she was before the 
accident, at a cost within what would 
be considered to be her value after 
repair. If she cannot, then there is 
a constructive total loss. You construct or 
build up on paper, or in other words you 



74 



ascertain by certain factors whether it is 
worth while repairing the ship. It goes 
without saying that if one had a bicycle 
which was damaged and found the cost of 
repairing it would exceed its value when 
repaired, one would not be so foolish as to 
have it repaired. One would rather use the 
money in buying a new cycle. So also a 
prudent shipowner would not spend more 
money to repair a damaged ship if, after 
repairing, he estimated that the ship would 
be of less value than the cost of repairs. 

DEFINITION OF C.T.L. 

Sect. 60, Sub-Sect. 2, para. 2, of the 
Marine Insurance Act gives the definition 
of a C.T.L. as follows : 

In the case of damage to a ship, where 
she is so damaged by a peril insured 
against that the cost of repairing the 
damage would exceed the value of the 
ship when repaired. 

As Chief Justice Tindal in Benson v. 
Chapman, 1843, remarked : " If the damage 
to the ship is so great from the perils in- 
sured against that the Owner cannot put 
her in a state of repair necessary for pur- 
suing the voyage insured, except at an 
expense greater than the value of the ship, 
he is not bound to incur that expense, but 
is at liberty to abandon and treat the loss 
as a total loss." Now what are the factors 
necessary to take into account? (1) The 
estimated cost of effecting the repairs. This 
would include General Average repairs in 
full, not merely ship's proportion of such 
repairs. (2) Ship's share of any general 
average expenditure or salvage charges. (3) 
Any other expenses necessarily incurred to 
effect the repairs. As, for example, sup- 
posing for the purpose of effecting repairs 
at a cheap port the vessel is towed to that 
port; the expense of towage would have 
to be included. (4) The estimated value of 
the vessel after incurring expenses under 
Nos. 1, 2 and 3. If the total of items 1, 
2 and 3 exceed No. 4, then the vessel is a 
constructive total loss. 



75 

The Institute Time Clauses contain what 
is known as the Valuation Clause, which 
reads : 

In ascertaining whether the vessel i s a 
C.T.L., the insured value shall be taken as 
the repaired value and nothing in respect 
of the damaged or break up value of the 
vessel or wreck shall be taken into account. 

The question as to the probable value of 
a vessel .after repair must necessarily be one 
of much conjecture, and would give rise to 
considerable discussion. The Valuation 
Clause I have quoted fixes the value and 
removes the ground for speculation or dis- 
cussion and provides that the value to be 
taken is the figure which .appears in the 
policy as the valuation of the subject matter 
insured. You will notice that the clause also 
provides that the value of the vessel in its 
damaged condition shall not be taken into 
account. 

A DEBATABLE POINT. 

It was formerly a debatable point as to 
whether the value of the wreck should not 
also be a factor to be taken into account 
when considering whether a vessel was or 
was not a C.T.L. If the matter was con- 
sidered solely from the point of view as to 
what a prudent uninsured owner would do, 
there is little doubt but that it 'would be 
taken into account. The question ha s been 
before the Courts for consideration, and it 
has been decided in some cases that the 
value of the wreck should be taken into 
account. The decisions were given in the 
Lower Courts, but the case of Macbeth v. 
The Maritime Insurance Company was 
taken to the House of Lords and the decision 
in that case was that the value of the wreck 
should be taken into account. This decision 
was given in 1908, but in 1906 the Marine 
Insurance Act was passed, and Sect. 60, sub- 
Sect. 2, para. 2 of that Act provides that : 
In estimating the cost of repairs no de- 
duction is to be made in respect of G.A. 
contributions to those repairs payable by 
other interests but account is to be taken 



76 



of the expense of future salvage operations 
and of any future general average contri- 
butions to which the ship would be liable 
if repaired. 

There is no mention of taking the value of 
the wreck into account, and the Act, there- 
fore, settles all disputes on this point. This 
decision of the House of Lords in the case 
of Macbeth v. Maritime Insurance Com- 
pany confirmed the view of those who con- 
sidered that the value of the wreck should 
be taken into account. The House of Lords 
had, however, to deal with the matter as at 
the time of the issue of the writ, viz., Octo- 
ber, 1905, a year before the passing of the 
Marine Insurance Act. If, therefore, the 
law prior to the Act of 1906 was to the 
effect that the value of the wreck was to be 
taken into account, then the law on the 
point has been altered by the passing of the 
Act. 

THE OWNER'S OBLIGATION. 

Now it must not be assumed that because 
the cost of repairing a vessel will exceed her 
value when repaired, the owner is bound 
to accept a settlement as for a construc- 
tive total loss. The value in the policy 
may be below the actual value of the vessel, 
as was frequently the case during the war 
when ships were scarce and freights were 
high, and the yalue of vessels rose in conse- 
quence. In such a case an Owner might 
not be able to replace his vessel for a sum 
equal to the valuation in the policy, and, 
that being so, he would prefer to have his 
vessel repaired. In such a case the Under- 
writers would be liable for general and 
particular average for the full amount of 
the policy. The Owner would collect the 
same sum as if he had claimed a C.T.L. 
and would keep his vessel, while the Under- 
writers would pay a sum equal to a total 
loss and not have the vessel to sell as sal- 
vage to diminish their loss. 

The Marine Insurance Act, Sect. 60, 
para. 3, provides that there is a C.T.L. in 



the case of damage to goods where the cost 
of repairing the damage and forwarding 
the goods to their destination iwould exceed 
their value on arriyal. If, for instance, a 
vessel puts into a port of refuge and is so 
badly damaged that she cannot be repaired 
and the voyage is abandoned, and the ex- 
penses of forwarding the cargo to destina- 
tion would exceed the value on arrival at 
destination, then there is a constructive 
total loss. 

There is >a constructive total loss on 
freight if, owing to an accident to the ship, 
the voyage is abandoned and the cargo 
cannot be forwarded except at an expense 
exceeding the original freight. 

ABANDONMENT. 

In order to entitle an assured to claim 
as for a constructive total loss he must have 
tendered abandonment to the Under- 
writer. A notice of abandonment is a 
notification by the assured to the Under- 
writer that he elects to treat his claim as 
one for total loss even though the subject- 
matter of the insurance is not, in fact, 
totally lost and may be recovered. This is 
usually done by the broker on behalf of his 
client. Notice may be given verbally, but 
it is customary to give same in writing. 
There is no specific form, but the broker 
generally gives notice in terms similar to 
the following : 

We regret to advise you that informa- 
tion has been received that the above 

vessel (here accident 

is mentioned) and is 

damaged to such an extent that the 
Orwners fear the vessel may become a 
total loss. In these circumstances we 
are, at their request, notifying you that 
they abandon to you their title and in- 
terest in the said vessel, and that they 
will in due course claim a total loss of 
the amount insured under your policy 
for 



78 



We presume in the event of abandon- 
ment not being accepted you will agree 
to place the Assured in the same position 
as if a writ had been issued. 

If the Underwriter declines to accept 
abandonment, he does so in terms similar 
to the following : 

In reply to your letter of , in 

which you state that the above vessel 

(here accident is mentioned) 

and that you are instructed by 

the Owners to abandon their interest 
in her, we beg to inform you that we de- 
cline to accept the abandonment, but 
will give our best attention to any claim 
which may arise. Meaniwhile we agree in 
this instance to place the Owners in the 
same position as if a writ had been served 
upon us this day. 

The notice of abandonment contains a 
request to place the Assured in the same 
position as if a writ had been issued. 
This is to avoid the incurring of the expense 
of issuing writs against each individual 
Underwriter. The issue of the writ bears 
a very important part in connection with 
a claim for a constructive total loss, as I 
shall show later. If the Underwriters decide 
to eccept the abandonment then they pay 
a total loss and the Shipowner's interest in 
the vessel passes to them. The acceptance 
of abandonment is equivalent to the sale of 
the vessel to the Underwriters, and they 
become thereby entitled to all the benefits 
and subject to the liabilities of the Owner. 

UNDERWRITERS AND FREIGHT. 

Supposing a vessel went ashore and it ap- 
peared probable that she could not be 
selved, and- the Owner tendered abandon- 
ment which was accepted by the Under- 
writers. If the Underwriters took steps 
to carry on the cargo they would be en- 
titled to any freight that might be earned 
under the original Bill of Lading, less, 
of course, the expenses incurred by them to 
earn uoh freight. Such an advantage might 



79 



only accrue if it happened that the vessel 
met with the accident comparatively near 
her destination. By abandoning his interest 
in the ship the Owner gives up all right 
to earn the freight. In the case of Stewart 
v. Greenock, Marine Insurance Co. (1848) 
the Owner abandoned, the ship to the Under- 
writers, who thereupon took steps to carry 
on the cargo to destination and collect the 
freight. The Shipowner claimed a total loss 
from his freight Underwriters, but the Court 
held thet the loss of freight to the Shipowner 
was not due to a peril insured against. It 
was due to the Shipowner's action in tender- 
ing abandonment to the Underwriters and 
Underwriters accepting same and taking 
steps to earn the freight. The Shipowner 
had transferred to the Underwriters his right 
to earn the freight and his loss of freight 
was due to this cause. The freight was not 
lost, for it was earned by his ship Under- 
writers. The Shipowner's position in such a 
case was considered to be inequitable, and 
in the Institute Time Clauses it is provided 
that 

In the event of total or constructive 
total loss no claim shall be made by Under- 
writers for freight whether notice of 
abandonment has been given or not. 

We will take an example of a C.T.L. 

A vessel, say, strands off the coast of 
France. Salvors are employed to get her 
off. They proceed to discharge the cargo 
and perhaps throw part overboard ; the 
vessel is leaking badly, pumps are employed 
and eventually with the assistance of tugs 
the vessel is towed off in a badly damaged 
condition and taken into the nearest port, 
where there are no facilities for permanent 
repairs. Temporary repairs are effected, 
the cargo is forwarded to destination and 
the vessel is taken in tow to another port 
for repadrs. When she arrives there she is 
put into dry dock. Surveyors make an 
examination and a specification of repairs is 
drawn ,up. This specification is sent out to 
the various ship repairers for the purpose of 
obtaining tenders for repairs. 



80 



We will assume that the policy contains 
the " valuation " clause, and the value of 
the vessel in the policy is 15,000. Tenders 
for repairs are received and they vary, say, 
from 10,000 to 14,000, or, say, a mean 
price of 12,000. 

We take the repairs at 12,000 

Towage 500 

Proportion of Salvage end G.A. ... 3,000 
Allow for extras, &c 500 

16,000 

The insured value being 15,000 the vessel 
is a C.T.L. 

Supposing, however, the expenses instead 
of being 16,000 are 14,500, then, as the 
value of the vessel is 15,000 she is not a 
O.T.L. 

You may naturally say, if the Under- 
writers have to pay 14,500, would it not 
be to their advantage to pay a total loss 
and have the vessel to sell for their own 
benefit? Undoubtedly yes, but the Owner 
has not only his rights under his policy on 
hull to consider, but his rights under his 
T.L.O. insurances on freight, disbursements, 
&c. If he cannot prove a C.T.L. he cannot 
recover under these policies, so it 'would be 
to his advantage to make his hull Under- 
writers pay 14,500 and to retain his rights 
to the ehip. If one of the Underwriters 
had accepted abandonment in such a case 
as the above, the Owner could call on him 
to pay a total loss, but he would have to 
account to the Underwriter for a share of 
the value of the vessel in its damaged con- 
dition, less, of course, the expenses of 
salvage, &c. 



ARRANGED TOTAL LOSS. 

Policies, generally reinsurance policies, are 
sometimes issued to cover against T.L.O. , 
C. T.L.O. or arranged total loss. In Street 
v. The Royal Exchange Assurance Corpora- 
tion (July, 1913) the Courts had before them 



81 



a case where a claim was made under a 
reinsurance policy containing the following 
clause : 

Being a reinsurance and to pay as per 
original policy or policies, but the insur- 
ance is against the risk of the total or 
constructive total loss of the steamer only, 
but to follow hull Underwriters in event 
of a compromised: or arranged loss being 
settled. 

The original Underwriters in this case did 
not admit a, constructive total loss as they 
were of opinion that the cost of repairing the 
vessel would not exceed her value when re- 
paired. The Owners, on the other hand, 
contended that the vessel was .a constructive 
total loss, and an action was brought against 
the Underwriters, but was settled without 
going into Court, by the Underwriters pay- 
ing a sum less than the insured value and 
allowing the Owners to take the proceeds 
of the sale of the boat in her damaged con- 
dition. 

Mr. Justice Bray, in his judgment, stated 
that there having been a claim for a con- 
structive total loss and that claim having 
been compromised, there was, in his opinion, 
within the meaning of the clause in question, 
a " compromised or arranged loss." He 
added that he came to that conclusion with 
some hesitation, but the difficulty entirely 
arose from the fact that the parties had 
not put their agreement into clear 
language. An arranged Loss is, therefore, 
a settlement effected in a case where there 
is a dispute .between the Owners and Under- 
writers as to whether or not the cost of 
repairs is such as to entitle the Owners to 
claim for a total loss : it is an amicable 
settlement made to avoid the expenses of 
litigation. 

I have referred to the importance that 
the issue of a writ bears in connection with 
claims for constructive total loss. When 
the case comes before the Courts the 
circumstances, as they existed at the date 
of the issue of the writ, are those considered 



82 



by the Court. The Owner has, in effect, 
to prove that on the day he issued the writ 
against the Underwriters for payment of a 
C.T.L. the costs of salving and repairing 
the vessel would exceed her value when 
repaired. He may have already expended 
money endeavouring to salve the vessel. 
Such expenses would not be taken into 
account 'because, as mentioned, it is the 
expenses which will have to be incurred 
after the date of the issue of the writ. 



THE "BLAIRMORE " CASE. 

There is a very good example of this rule 
in the case of the Blairmore. The vessel 
was stranded in the Bay of San Francisco. 
The Owner tendered abandonment to his 
Underwriters, which the Underwriters 
refused to accept; the Owner, however, did 
not issue a writ. The Salvage Association, 
on the instructions of Underwriters, made 
arrangements for salving the vessel, and 
successfully did so, and the vessel was taken 
into San Francisco. The salvage expenses 
amounted to 7600. The vessel was placed 
in dry dock and was found to be badly 
damaged. The Owner issued a writ for pay- 
ment of a C.T.L., and included in his 
estimate of expenses necessary to restore 
the vessel the sum of 7600. The Court 
decided that the Shipowner was not entitled 
to include this sum in his estimate. The 
Court had to consider what, on the date 
of the issue of the writ, would be the 
expense to repair the vessel. The sum of 
7600 could not be called an expense that 
on the date of issue of writ would have to 
be incurred, because it had, in fact, already 
been incurred. The Owner in the case of 
the Blalrmore further claimed that 
although the Underwriters had declined to 
accept abandonment in writing, yet their 
act of employing salvors to ealve the ship 
was tantamount to an acceptance of 
abandonment. This plea would probably 
have succeeded but for the fact that the 
policy contained what is known as the 
waiver clause, which runs as follows : 



63 



Under this clause it is agreed between 
the Assured and his Underwriters that an 
attempt on the part of the Owners or 
Underwriters to salve the vessel after the 
Owner has tendered abandonment does 
not in any way prejudice the Owner's 
tender of abandonment or the Under- 
writer's refusal thereof. 

What is the effect of an acceptance of 
abandonment? The late Mr. MacArthur, an 
Average Adjuster of great repute, in his 
iwell-known work "The Contract of Marine 
Insurance," says : 

The effect of a valid abandonment is to 
transfer the whole interest in what 
remains of the thing insured with all the 
benefit or advantage incidental thereto 
from the Assured to the Underwriters. 
This transfer includes not only the pro- 
perty insured but all the rights and lia- 
bilities attaching to its Ownership, and it 
is retrospective reverting to the time of 
the casualty which gave the right to 
abandon. 

If an Underwriter accepts abandonment 
he thereby admits his liability for a total 
loss. If he refuses to accept abandonment 
but subsequently pays a total loss, such pay- 
ment is an admission that the Owner was 
entitled to abandon. In Sect. 63, Para. 1 of 
the Marine Insurance Act the effect of aban- 
donment is stated to be as follows : 

Where there is a valid abandonment the 
Insurer is entitled to take over the interest 
of the Assured in whatever -may remain of 
the subject-matter insured and all pro- 
prietary rights incidental thereto. 

It does not seem to me that these two 
definitions quite tally, but I think they may 
be reconciled. Mr. MacArthur says that a 
valid abandonment transfers all rights and 
liabilities attaching to the ownership, and 
one would presume that an acceptance of 
abandonment is an acceptance by the Under- 
writer of all rights and liabilities, but the 
Section I have quoted from the Marine In- 
surance Act says that the insurer is entitled, 



i.e., he has the option of taking over the 
interest of the assured ; if he does so, then 
he not only takes over the rights, but also 
the liabilities that may attach to the dam- 
aged ship or wreck. 

In Suart v. Merchants Marine Insurance 
Company (1898) the Underwriters were held 
liable for damage caused to a vessel which 
collided with the wreck of the Alleghany. 
In this case the Alleghany had been sunk in 
the Delaware River and the Owners had 
tendered abandonment to their Under- 
writers. The Underwriters refused to accept 
abandonment, but it was agreed between 
the two parties, the Owners and the Under- 
writers, that attempts should be made to 
raise the wreck. If it should transpire that 
the Alleghany -was a constructive total loss, 
the salvage would be for the Underwriters, 
but if eventually it was proved that she was 
not a constructive total loss, the salvage 
would be for Owners' account. iWhere a 
vessel sinks in a place where she becomes a 
danger to navigation, the harbour or river 
authorities have a duty placed upon them 
to mark the wreck so as to warn passing 
steamers of its existence. In this case, as 
salvors were attempting to raise the wreck, 
the duty of marking the wreck fell upon 
them. The wreck of the Alleghany was not, 
however, properly marked, and as a conse- 
quence a vessel called the Siberian collided 
with it and sustained damage. The Owners 
of the wreck of the Alleghany were liable for 
the damage done to the Siberian. The 
Alleghany proved to be a constructive total 
loss, and the Court held .that the salvors 
became the servants of the Underwriters 
and not the Owners, and the Underwriters 
therefore were held to be liable for the 
whole of the damage done to the Siberian. 

Therefore if an Underwriter pays a total 
loss and takes upon himself the rights of 
the Owner and takes possession of the wreck 
for the purpose of raising her, he becomes 
responsible for any liabilities that may 
attach to the wreck. If, on the other hand, 
he prefers to let the wreck alone and com- 



85 



mits no act of ownership, then he does not 
become responsible for the liabilities that 
may arise in connection with the wreck. If, 
therefore, a vessel sinks in a spot where she 
is likely to be a danger to navigation, 
Underwriters have to consider very care- 
fully whether or not they will exercise their 
option to take over the rights and liabilities 
of the Owners. As I have said before, if 
an Underwriter accepts abandonment, he 
makes himself liable to pay a total loss, 
whether or not subsequent events show that 
the vessel is a constructive total loss, and if 
after accepting abandonment he assumes 
ownership of the property, he will, as I 
have explained, become answerable for lia- 
bilities. If an Underwriter refuses to accept 
abandonment, then the assured must prove 
the vessel is a constructive total loss to 
entitle him to recover from his Underwriter. 

Clause 17 reads : " In no case shall Under- 
writers be liable for unrepaired damage in 
addition to a subsequent total loss sustained 
during the term covered by this policy." The 
insertion of this clause is unnecessary, for 
it is now settled law that an Underwriter 
is not liable to pay for unrepaired damage 
in addition to a total loss. An Owner is 
not bound to have his ship repaired. A 
vessel may strand and her bottom plating 
may be set up ; this may not affect her sea- 
worthiness, but in the event of the sale of 
the vessel a buyer would naturally not give 
so much for the vessel .as if she were in 
sound condition. Therefore, if damages are 
not repaired, the Underwriter is liable to 
pay to the Owner the amount of deprecia- 
tion suffered by the vessel owing to the un- 
repaired damage. This depreciation is, of 
course, a matter of estimate, but in any 
event it must not exceed the estimated cost 
of repairs. 

"WAR" RISKS. 

During the war the need for ships was so 
great that the Authorities would not allow 
Owners to lay up their vessels for permanent 
repairs, and would only permit the use of 



86 



dry docks for essential repairs to make ves- 
sels seaworthy. Therefore, during the war 
there were very many vessels at sea with 
damages unrepaired. If a vessel with un- 
repaired damages should be lost, the loss 
to the Owner would be a total loss only, not 
a total loss plus unrepaired damages. It is 
immaterial whether the vessel is sound or 
damaged he loses the whole and he cannot 
lose more than the whole. The smaller loss 
of unrepaired damage becomes merged into 
the greater loss, viz., the total loss. It does 
not matter whether or not the total loss is 
due to a risk covered by the policy, the 
effect is just the same, viz., the Owner loses 
his ship. 

In Livie v. Jansen (1810) a vessel which 
had stranded and sustained damage was cap- 
tured while she was ashore. The Owner 
claimed from his Underwriters a partial lo&3 
in respect of the damage due to stranding. 
The Owner was uninsured for " war " perils. 
The Court decided that the Marine Under- 
writers were not liable as the Owner had 
not sustained any loss by reason of the 
stranding. The captors sustained the loss, 
as instead of a sound ship they only cap- 
tured a damaged vessel. It is quite im- 
material whether the Owners are or are not 
insured against the peril which caused the 
loss, the fact that the vessel has been totally 
lost during the period covered by the policy 
relieves the Underwriter from liability for 
payment of unrepaired damage. As I have 
above remarked, during the war many ves- 
sels were sailing with unrepaired damages, 
and in many cases these ships were requisi- 
tioned and the war risk was taken over by 
the Government. The Charter-party pro- 
vided that in the event of the vessel being 
lost by a " war " peril they would pay the 
Owner the value of his vessel. If, therefore, 
a vessel with unrepaired damaged was tor- 
pedoed, the Government only paid the 
actual value of the vessel, i.e., the sound 
value less the unrepaired damage. In the 
case of Wilson Shipping Co. v. British k 
Foreign Marine Insurance Company (1920) 
the vessel having been lost by a " war " 



87 



peril, the Owner recovered from the 
Admiralty her sound value less the unre- 
paired damage of 1770, and .he sought to 
recover from his Marine Underwriters the 
amount which had been deducted by the 
Admiralty, as this unrepaired damage was 
caused by a sea peril. The House of Lords, 
however, held that the principle laid down 
in Livie v. Jansen applied to this case also, 
and decided that the Marine Underwriters 
were not liable, in other words if the Marine 
Underwriters would not have been liable if 
the Owners had not been insured against 
" war " loss (as in Livie v. Jansen), neither 
are they liable because the Owner is insured 
against " war " risks under conditions which 
do not entitle him to recover the full value 
in the event of loss. 



LOSS AFTER EXPIRY OF POLICY. 

If the total loss does not occur during the 
period covered by the Policy, the position is 
different. The assured is entitled, as at the 
expiration of the Policy, to claim from the 
Underwriter payment for depreciation 
caused by a peril insured against and exist- 
ing at that time. If the vessel is lost after 
the expiry of the Policy, this would not re- 
lieve the Underwriters from liability to pay 
for the unrepaired damage and the under 
writers on the succeeding Policy would have 
to pay the full insured value, although the 
vessel was in a damaged condition. (Lidgett 
v. Secretan, 1871, and Woodside v. Globe 
Marine Insurance Company, 1896.) We have, 
therefore, two instances where vessels with 
unrepaired damage are subsequently lost; 
in the first instance the Owner does not re- 
cover in respect of his unrepaired damage, 
and in the other instance he recovers both 
his unrepaired damage in respect of which 
he has not sustained any financial loss, and 
a total loss in addition. This may appear 
to be inconsistent with the principle that 
an assured must not make a profit out of a 
loss, but this is only because the total loss 
occurred during the currency of the succeed- 
ing Policy. The vessel might, however, run, 



88 



say, for ten or twenty years with unrepaired 
damage and then be totally lost, or the 
Owner may not sell his ship for some years 
after the accident, in which event the buyer 
would still require an allowance for un- 
repaired damaged. Looked at from this 
point of view, the decision in Lidgett v. 
Secretan is quite reasonable. 

EXCESS GENERAL AVERAGE CLAUSE. 

As I have explained to you, an Under- 
writer is only liable for salvage and general 
average expenditure in full, if the vessel is 
fully insured. When policies are effected 
to cover a period of, say, 12 months, the 
valuation in the policy is supposed to repre- 
sent the value at the commencement of 
that time. During the period of 12 months 
you will readily understand that the value 
of vessels may alter values may rise or 
fall. The consequence is that sometimes 
the value in the policy may be below the 
actual value for the purpose of contribution 
to general average, and the owner would 
not therefore be able to collect the whole 
general average under his ordinary hull 
policy. If the vessel should be damaged, 
the amount paid for particular average 
would have to be deducted from the policy 
value in order to ascertain the value on 
which the Underwriter would be liable. 

Contributory value 12,000 pays ... 120 

Insured value 10,000 

Less P.A 2,000 

8,000 pays ... 80 

Amount unrecovered ... 40 
This 40 would be recoverable from the 
excess liability Underwriter provided that 
the owner had taken out a policy for a 
sum equal to the difference in value, viz., 
4000, i.e., 12,000 less 8000. If his excess 
general average policies were only for 
3000 he would recover three-fourths of 
40. If his policies were for 5000 he would, 
of course, recover the full 40, but not more 
than 40. 



SIXTH LECTURE. 

Delivered February 25, 1921. 



THE COLLISION CLAUSE 



AN ANALYSIS OF CLAIMS. 

This evening I propose to deal with 
Claims under the Collision Clause, or, as 
it is' sometimes called, the Running Down 
Clause. There have been in the past 
several forms of R.D.C., but the form as it 
appears in the Institute Time Clauses is 
the one now generally in use, and my re- 
marks will deal with this form of clause. 
I -would, however, first refer to a ship- 
owner's liability apart from the clause. Ac- 
cording to law a shipowner is liable for 
damages caused by the negligent navigation 
of his ship. These damages need not neces- 
sarily arise from collision, as, for instance, 
if a steamer passing down a river at an 
excessive speed which would naturally 
cause a great disturbance of water, and the 
wash thus caused did damage to barges, 
causing them to collide with one another 
or to break loose, the shipowner would be 
responsible for the damage done. Ship- 
owners are, by the terms of the Merchant 
Shipping Act, entitled to limit their lia- 
bility for damages caused by negligent navi- 
gation. The Act, among other matters, 
provides that if, by reason of improper 
navigation of a vessel, there should be loss 
of life or personal injury to any person 
on board any other ship or vessel or 
damage to such other ship or vessel or 
cargo on board thereof, the owner of the 
wrong-doing vessel is only answerable to 
the extent of 15 per ton of the vessel's 
registered tonnage if there should be loss 
of life or personal injury, or 8 per ton 
if the damage consists only of damage to 



90 



ship and cargo. The limitation of liability 
is only granted provided it can be shown 
that the improper navigation is not due to 
the actual fault or privity of the owner of 
the wrong-doing vessel. 

If, therefore, the damages caused to the 
other vessel exceed the shipowner's liability 
as fixed by the Act, he makes an application 
to the Court for limitation of liability. Ap- 
plications for limitation of liability are in- 
variably granted, but quite recently a case 
oame before the Courts where the applica- 
tion was refused. A vessel had come in 
collision and sunk another ship. The col- 
lision was due to faulty steering gear which 
failed to act properly, causing the ship to 
manoeuvre badly and come into collision with 
the other vessel. This steering gear had 
caused trouble previously, and its defective 
condition was known to the owners. The 
Judge found that the owners did know, not 
of the special defect, but of such failure of 
action in the steering gear as shown, which 
ought to have conveyed to them that it was 
a dangerous thing to send a ship to sea 
without making proper investigation to 
ascertain the cause of the defective action. 
Under these circumstances, the Court de- 
clined to limit the shipowners' liability to 
8 per ton, and consequently they have to 
pay the whole of the damage caused. 

LIMIT OF LIABILITY. 

As I have mentioned, if there is loss of 
life, the shipowner's limit of liability is 15 
per Ion. 7 per ton is used exclusively for 
life and personal injury claims, and if thia 
is not sufficient to meet such claims, the 
balance of these claims rank pari passu with 
the ship and cargo claims against the re- 
maining 8 per ton. The R.D.C. provides 
that in the event of the vessel in- 
sured coming into collision " with 
another ship or vessel and the 
insured shall in consequence thereof bf 
liable to pay and shall pay by way of 
damages to any other person or persons any 
um or sums in respect of such collision," 



91 



the Underwriters will pay three-fourths of 
such damages provided the total damage 
payable by the owner does not exceed the 
value, i.e., the insured value of the ship. 
This does not mean that if the damages do 
exceed the value of the vessel the Under- 
writers do not pay anything, -but that in the 
event of the damages exceeding the insured 
value they will only pay on the basis of 
three-fourths of the insured value. The 
clause also provides for payment of three- 
fourths of costs incurred in legal proceedings 
in connection with the collision provided 
same are taken with the Underwriters' con- 
sent. There are other provisions in the 
R.D.C. which I will deal with later. 

The provision to pay only three-^fourths is 
a very old provision, and it was probably 
thought that if an owner had to bear one- 
fourth of the damage himself then he would 
bring pressure to bear on his servants to 
exercise extreme care in the navigation of 
his ship. A similar provision is, as you 
know, made in connection with the pilferage 
clause in cargo policies, where Underwriters 
only pay three-fourths of pilferage claims 
so as to bring pressure to bear on cargo 
owners to have their goods properly and 
securely packed so as to minimise the risk 
of theft. 

Shipowners, however, insure the one- 
fourth of their liability in a Protection and 
Indemnity Association. These Associations 
are Mutual Associations formed by ship- 
owners themselves by which they insure 
themselves against their liabilities not 
covered by ordinary Marine Insurance 
Policies. The R.D.C. refers solely to 
damage by collision, i.e., collision with 
another ship or vessel. A collision with a 
ship or vessel will include collision with 
any part of its apparel which is in con- 
nection with the ship, such as the anchor 
or the ship's boat towing astern. It would 
not, however, include fishing nets attached 
to a trawler. This was so decided in the 
case of the Bennett Steam Ship Company 
v. Hull Steamship Protection Society. The 



92 



Burma collided with the nets of a 
trawler off Boulogne. The trawler herself 
was over a mile away ; the nets were . of 
course, attached to the trawler. The owner 
of the Burma had to pay for the damage 
done and the question raised was whether 
he could claim from his Underwriters under 
the R.D.C. for their share of the sum so 
paid. The Courts decided in favour of the 
Underwriters. 

Damage done to a sunken ship which 
could have been raised and repaired would 
be a collision with a ship or vessel, but 
damage done to a sunken ship which was 
unsalvable would not that would be colli- 
sion with a wreck. 

Dealing with the R.D.C., BO far 
as I have reference to it, I will take 
the following example of its application. 
A's vessel (insured value 10,000) comes 
into collision with B's vessel and does 
damage to the extent of 2000, which B 
claims from A, together with demurrage 
(damages for loss of use of vessel during 
repairs) amounting to 500, a total of 2500. 
The damage is due to the negligence of 
those on board A's vessel, and in conse- 
quence thereof A has become liable to pay 
and has paid 2500, and he therefore re- 
ceives from his Underwriters 1875, being 
three-fourths of the 2500, the remaining 
one-fourth of 625 he claims from his Pro- 
tection Club. A's boat has also sustained 
damage, but as the accident is due to negli- 
gence of A's servants, he cannot recover 
anything from B. He looks to his Under- 
writer to pay him for the damage to his 
ship, but he has to bear himself the loss 
of his demurrage. 

SINGLE LIABILITY. 

If, however, neither A nor B will admit 
liability for the damage done, but both 
claim that the other is liable, then the 
matter can either be dealt with by an agreed 
Arbitrator or decided in a Court of Law. 
Assuming that it is finally decided that both 



93 



vessels are equally in fault, then the two 
owners have each to bear one-half of the 
other's loss. A's damages 1000, demurrage 
500; total 1500. B's damages 2000, 
demurrage 500; total 2500. B's damages 
of 2500 being in excess of A's damages of 
1500 leaves a difference of 1000 in favour 
of B, and A pays B one-half of 1000 500. 
This is the rule of settlement on the basis 
of single liability which is the established 
method of dealing with such a case. It 
has the same effect as far as the relationship 
between A and B is concerned, as if A had 
paid B one-half of 2500, viz., 1250, and 
B had paid A one-half of 1500, yiz., 750, 
the difference of 500 being the sum 
payable by A to B. 

A having paid B the sum of 500 for 
damages caused to B's ship then proceeds 
to make his claim under the policy : 
He claims as P. A. the damage caused to 
his own ship, viz., 1000; and from his 
Underwriter three-fourths of the sum paid 
to B, viz., 500; and from his Club one- 
fourth of the sum paid to B, total 1500. 



LOSS OF DEMURRAGE. 

He has, however, in addition to the 
damage to his ship, sustained a loss of 
demurrage of 500. As B was responsible 
to him for one-half of his loss, he would 
naturally expect to recover one-half of his 
demurrage of 500, viz., 250. This is, 
however, not so, if the claim is recoverable 
from the Underwriters on the basis 
of single liability, as A having P. A 
damage to the extent of 1000, and 
having paid for damage to B's ship, 500, 
and sustained a loss of demurrage of 500 
of which 250 is supposed to be payable by 
B, his recoverable loss either from his 
Underwriters or Club and from B should be 
1750. But he only recovers P. A. 1000; 
D/D to B's vessel 500, total 1500, leaving 
him out of pocket for one-half of his de- 
murrage, viz., 250. 



94 



This effect is brought about by the wording 
of the R.D.C., under which Underwriters 
pay three-fourths of the sum paid by the 
Assured, i.e., the actual sum which he has 
to hand over to the other Owner, which in 
the instance quoted is 500. 

CROSS LIABILITIES. 

This is, of course, inequitable, inasmuch as 
the Underwriters and Club in only paying 
A the actual amount paid by him to B are 
taking credit for the 250 demurrage (which 
B is supposed to pay to A) to which they 
are not really entitled. This hardship is 
remedied by the insertion in the R.D.C. of 
the Cross Liabilities clause, which runs as 
follows : 

but when both vessels are to blame 

claims under this clause shall 

be settled on the principle of cross liabili- 
ties as if the owners of each vessel had 
been compelled to pay to the owner of the 
other such vessel such one-half or other 
proportion of the latter's damage as may 
have been properly allowed in ascertaining 
the balance or sum payable by or to the 
assured in consequence of such collision. 

I find the greatest difficulty in placing the 
position in such a clear light that you can 
readily follow my figures. The mass of 
figures involved, I must admit, is enough to 
confuse anybody, and they require very 
careful study to enable one clearly to under- 
stand the matter. In order to make my case 
as clear as I can I propose to trkc as an 
example a case where two vessels are in 
collision, the collision is due to mutual fault 
and the damages are both equal a very 
improbable supposition. 

A's DAMAGES. 

Ship 12,000 

Demurrage 500 

2.500 



95 



B's DAMAGES. 

Ship 2,000 

Demurrage 500 

2,500 

No payment passes between A and B, 
and their only recourse is to their Under- 
writers for payment of their Particular 
Averages of 2000 each. A and B therefore 
receive no recovery in respect of their de- 
murrage, as neither Underwriters nor 
clubs make any payment under the R.D.C. 
under the Single Liability Principle. 

ON CROSS LIABILITIES. 

A's Underwriter pays 2,000 

Less one-half recovery from B 1,000 



1,000 

One-half of B's damages three- 
fourths paid by Underwriters, 

one-fourth paid by Club 1,250 

Leaving A to bear one-half of his 
demurrage loss of 500 250 



2,500 

and B recovers 2250 from his Underwriter 
and Club on the same basis, and bears the 
loss of one-half of his demurrage, viz., 250 
himself. 

We will now take the example previously 
given and show the position of A as regards 
his claim against his Underwriters : 

A's damages to his ship were 1,000 

Demurrage 500 

1,500 
B's damages to his ship were 2,000 

Demurrage 500 

2,500 



Difference in favour of B 1,000 

Of which A pays to B one-half 500 



96 



Under the Cross Liabilities Clause A's claim 

on Underwriter is as follows : 

For P.A 1,000 

Less credit for one-half recovered 

from B 500 

500 

and under the R.D.C. 
One-half of B's damages of 
2500, viz., 1250, three- 
fourths of which 937 10 



1,437 10 

The remaining one-fourth 
payable by Club 312 10 



Makes the total recovery of A 1,750 

A's recoverable loss is : 

Damage to ship 1,000 

One-half of his demurrage of 500 250 
Amount paid to B 500 

1,750 

the whole of which he recovers from his 
Underwriters and his Club, as above. 

B's position with regard to his Under- 
writers and his club on the Single Liability 
basis is as follows : 
B's loss : 

Ship's damage 2,000 

Demurrage 500, of which 
he is entitled to receive 
one-half 250 

2,250 

He receives from A 500, of 

which 20/25ths is for 

damage to ship 400 

And 5/25ths for loss of de- 
murrage 100 

500 

B's loss after A has paid him 500 1,750 

He recovers '.from his Underwriters 2,000 
Less Underwriters' share of re- 
covery from A 400 

1,600 



97 



Here again his loss of demurrage 

was 500 

Of which he should be entitled to 
recover one-half from A 250 

250 

But of the 500 paid by A, his 
Underwriters get 400, and he re- 
ceives only 100 



Showing that he receives short for 

demurrage 150 

As B has not paid anything to A his Under- 
writers have nothing to pay under the 
R.D.C. 

If the matter is dealt with on the prin- 
ciple oif Cross Liabilities, B's position will 
be put right in the same way as A's, and 
it will be found that B will receive one-half 
of his demurrage in full and his Under- 
writers and Club will pay B's liabilities for 
his damages to A's ship. 

UNEQUAL LIABILITY. 

It does not always follow when two 
vessels are in collision and are both to 
blame, that the blame is equal; sometimes 
one is more to blame than the other, end 
if this is so, the Courts apportion the blame, 
say, one-fourth and three-fourths, or other 
proportion. In such cases the damages are 
divided accordingly, instead of half and 
half. 

In quoting the paragraph in the R.D.C. 
dealing with the principle of Cross Liabili- 
ties, I omitted certain words, which were : 
Unless the liability of the owners of one 

of both such vessels becomes limited by 

law. 

That is to say, in the event of there being 
limitation of liability, then the principle of 
Cross Liabilties icannot be claimed by the 
assured when collecting under the R.D.C. 
Where there is limit of liability there may 
be an equal hardship on the owner by 
reason of his claim under the R.D.C. being 
based on the principle of single liability. 



98 



I once had a case before me like the fol- 
lowing : 

A's vessel damages B's vessel. 

A's damages are 3,000 

Demurrage 1,000 

4,000 

B's damages are 14,000 

Demurrage 4,000 

18,000 

Difference 14,000 one-half of which 
(7000) payable by A to B. A obtains leave 
to limit his liability to 8 per ton, which 
we will take as 6000 and pays this sum to 
B. A claims from his Underwriters and 
Club 6000; his own policy does not cover 
him against Particular Average, so that 
although he has sustained a loss of 4000 
and B is supposed to be liable for one-half 
of his damages, yet he recovers nothing but 
has to bear the whole of his damages him- 
self. As a prudent owner, he must, of 
course, limit his liability, but as his Under- 
writer and Club shoulder his liability for 
damages done, it is they, and not he, who 
gain. He, in fact, loses, for if he had not 
limited his liability he would in theory have 
paid 9000 and received one-half of his 
damage of 4000 (2000), leaving 7000, and 
on the principle of Cross Liabilities his 
Underwriter and Club would have had to 
pay him 9000 instead of 6000. 

The reason for excluding " limited lia- 
bility " claims from the operations of the 
"Cross Liabilities " principle is, I think, the 
following : In the instance I have quoted, 
you will see that A does not pay one-half of 
B's claim. B's one-half claim is 9000, 
and A only pays 6000. It is really im- 
material in the instance quoted whether A 
is only half or wholly to blame he has to 
pay the same amount, i.e., his limited lia- 
bility of 6000. If B was in no way to 
blame and the blame was entirely due to 
A's servants, A would still be entitled to 
limit his liability and only pay 6000. It is 
therefore impossible to assume in theory that 



99 



both sides pay to each other one-half of 
their respective damages. In dealing with 
claims on the principle of Cross Liabilities 
you assume in theory that B's claim is re- 
duced by A's claim, but A limiting his lia- 
bility for 6000 does not pay as much B's 
claim, 9000, reduced by A's claim, 2000, 
viz., 7000. Therefore you cannot, even in 
theory, assume that B's claim is reduced by 
A's, when A only pays 6000. 

If you did you get the following incorrect 
result : 

A's liability to B is 6000 

which is less than half his damages, and 

B's liability to A is 2000 

one-half oif A's damages, 

leaving a balance 4000 

payable by A to B, whereas, in fact, A has 
to pay 6000. 

And moreover, as A, by limiting his lia- 
bility, does not pay B one-half of his claim, 
therefore it would not be equitable to assume 
that A is entitled to receive one-half of his 
claim. 

CARGO CLAIMS. 

Further, taking into consideration that in 
both to blame cases cargo claims 
may be involved in addition to 
claims for damage to ship where " lia- 
bility is limited," one can quite see that 
the matter is altogether too involved to 
permit the application of the Cross Liabili- 
ties principle in such, cases. I would like 
to point out here that as regards cargo 
claims, there is no set off as in the case of 
damages to ship. A's cargo owners claim 
direct from shipowner B, and B's cargo 
owners claim direct from shipowner A. Each 
shipowner is liable to pay direct to the 
cargo owners the proportionate share of the 
damage done to the cargo on the other 
boat, and such payments are not taken into 
account in settling the balance of claim, 
as between the two shipowners. 

The method of apportioning a claim 
where the shipowner limits his liability is, 
of course, simple. 



100 

Limited liability of A 6,000 

Apportioned as follows : 

B's half damages 9,000 

A's half damages 3,000 



Difference in favour of Shipowner 

B 6,000 

B's one-half cargo claim 12,000 



18,000 

i.e., total claims of 18,000 have to be re- 
duced to 6000, so that each claimant re- 
covers 6/18ths, i.e., one-third of his claim, 
viz. : 

B recovers one-third of 6000 ... 2,000 
B's cargo recovers one-third of 

12,000 4,000 



6,000 

Supposing the damages to A's 

ship are 5,000 

Demurrage 1,000 

6,000 
And damages to B's ship 

are 14,000 

Demurrage 4,000 

18,000 



Difference 12,000 

one-half of which (6,000) would rank 
against the limited liability of A. 

You cannot apply the Cross Liabilities 
principle to such a case. If A attempted 
to claim from his Underwriters on the prin- 
ciple of Cross Liabilities he would find him- 
self in an impasse, for he has not paid B 
one-half of B's damages reduced by one- 
half of his own. B's one-half damages was 
9000, but owing to A limiting liability and 
there also being cargo claims, he only re- 
covers 2000. It is, therefore, quite clear 
that the amount paid to B has not been 
reduced toy A's damages. 



101 



In the illustration I have given yoj will 
see that B's half damages are 9000, but 
A only pays B 2000, and it would, there- 
fore, be absurd to imagine that B would pay 
A one-half of his damages, or 3000. You 
could only apply the clause if it could be 
shown that A's liability to B was reduced 
by B's liability to A, which is not the case. 

The clause provides for recovery of 
damages that the assured may have to pay 
in consequence of such collision, i.e., 
it may be that the consequences of 
such collision are not merely the two vessels 
coming into contact and doing damage to 
each other, but there may be further 
damages consequential on such collision. 

In the case of W. France, Fenwick v. 
Merchants Marine Insurance Company, the 
Underwriters were held liable to pay for 
consequential damage arising out of the 
collision of the Cornwood with the Rouen. 
These two vessels were in collision in the 
Seine, the impact causing considerable suc- 
tion, which drew another vessel called the 
Galatea on to the Rouen. As the Cornwood 
was held liable for the collision with the 
Rouen, the owners also had to pay for the 
damage done by the collision of the Galatea 
with the Rouen, as it was considered that 
the collision between the Galatea and Rouen 
was a consequence of the collision with the 
Cornwood and Rouen. 



REMOVAL OF OBSTRUCTIONS. 

The R.D.C. further provides that an 
assured cannot recover damages which he 
has become liable to pay for removal of 
obstructions, injury to wharves, harbours, 
&c., in consequence of such collision; or in 
respect of the cargo or engagements of the 
insured vessel, or for loss of life or personal 
injury. If, as a result of the collision, 
damage is done to piers, stages and similar 
structures, the Underwriters will not pay 
for such damages, although they may be 
consequential on the collision. Neither are 
they liable to pay any sums which the 



102 

1 may 'have to pay for loss of life or 
personal injury, or for loss of cargo on 
board the vessel itself, which may have been 
damaged by such collision. The loss of life 
and damage to wharves, harbours, &c., ex- 
cluded under the R.D.C. are usually covered 
by one of the Protection Indemnity Clubs, 
while the owner generally escapes liability 
for damage to his own cargo by reason of 
the terms of the Bill of Lading under which 
such cargo is carried. 

The concluding paragraph of this clause 
deals with cases where the two colliding 
vessels belong to the same owners, part 
owners, or are under the same management. 

This clause, so far as collision claims are 
concerned, was inserted as a consequence 
of the decision in the case of Simpson v. 
Thomson, 1877. Two vessels, A and B, be- 
longing to the same owner, came in collision 
and B was sunk. The collision was due to 
the fault of those on board A. The claims 
in respect of cargo on board B exceeded the 
limited liability of the owner, who limited 
his liability and paid the amount into Court. 
The Underwriters, having paid a total loss 
to the owner for the loss of B, claimed to 
be entitled to participate in the money paid 
into Court. The Court decided that the 
payment of a total loss did not entitle the 
Underwriters to any rights not possessed by 
the assured, and as he, as owner of B, could 
not recover from himself as owner of A, 
neither could his Underwriters do so. 

The same principle is .by the clause con- 
ceded in the case where one vessel renders 
salvage services to another, and the owners 
of both vessels are the same i.e., where A 
has rendered salvage services to B. The 
owner could not, as owner of A, sue himself 
as owner of B. 

This clause, of course, does not apply to 
cargo. The owners of cargo, as I have pre- 
viously remarked, have the right to claim 
direct against the shipowner for damages by 
collision, and the shipowner could claim sal- 



103 

vage services direct from the owners of 
cargo on board the salved vessel. 

The clause, however, removes a hardship 
in cases of collision, for, as I have shown, 
it enables the owner to recover parfc 
of his demurrage, while as regards 
salvage, he would naturally sustain 
certain losses in respect of the salving 
steamer loss of hire, crews' -wages, &c., 
during the towage which he would not be 
able to recover from the Underwriter of 
the salved vessel if this clause were not 
inserted in the policy. 

" CAUSA PROXIMA." 

I can, of course, only touch on the fringe 
of causa proxima time will not permit me 
to deal with it at length. An effect is the 
result of a cause, and that cause may be 
the outcome of other causes. Say two motor 
oars came into collision result, damage to 
both cars. Why has the collision occurred? 
Because one of the cars was being driven 
at too great a speed. Why was the car 
being driven at too great a speed? Be- 
cause the owner was anxious to reach the 
station in time to catch a certain train. 
Why did he want to catch this certain 
train? And so on ad infinitum. We here 
have a number causes ending in one final 
cause, viz., collision. The initial cause is 
called causa remota. A little consideration 
will show how far remote a cause may be. 
The intermediate causes are called causa 
causans, and the final cause is called causa 
proxima. The application of the principle 
of causa proxima in Marine Insur- 
ance is important, for it in most cases re- 
moves the ground for speculation in con- 
sidering the cause to which losses may be 
due. 

The case of Pink v. Fleming is an excel- 
lent example. A vessel having been in col- 
lision, puts into a port of refuge for repairs. 
To effect these repairs it is necessary to 
discharge the cargo. While being dis- 
charged the cargo becomes damaged by 
handling. The goods were insured against 



104 

damage consequent upon collision with any 
other ship. A claim was made on Under- 
writers for the damage. The Court decided 
in Underwriters' favour the goods were 
damaged by handling, not by collision. It 
is true that if the collision had not occurred 
the goods would not have had to be dis- 
charged, and therefore could not have been 
damaged by handling, but the collision did 
not occur without cause. What was the 
cause of the collision. The collision was due 
to an error on the part of the steers- 
man, who improperly manoeuvred the 
ship. If you could claim that the 
damage to the cargo was due to the 
collision, you could with just as much logic 
claim that it was due to the act of the 
steersman or to the cause which made the 
steersman commit the error. The goods 
were not bound to be damaged because they 
were discharged, and (consequently sudh 
damage could not be said to be the in- 
evitable result of the collision. 

The sequence of causes from causa remota 
to causa proxima resembles a chain with a 
number of links, each of which links repre- 
sent a cause, and each cause must reason- 
ably bear the test of showing that the 
succeeding cause is the inevitable outcome, 
or perhaps, I should say, unavoidable out- 
come of the preceding cause. In such a 
way a cause, although not the final cause, 
may in effect be the causa proxima. The 
principle of causa proxima must be applied 
in a reasonable spirit in those cases where 
too literal application would cause a hard- 
ship. Lord Selborne in the case of Inman 
Steamship Company v. Bischop in 1882 
said : 

The general principle of causa proxima 
non remota spectatur is intelligible enough 
and easy of application in many cases, but 
there are cases in which a too literal ap- 
plication of it would work injustice and 
would not be really justified by the prin- 
ciple itself. 

Causa proxima has been described as the 
" dominant" cause. 



105 

THE " DOMINANT " CAUSE. 

Take the case of the Ikaria. This vessel, 
when in the Channel, was torpedoed about 
25 miles from Havre. She did not sink but 
sustained serious damage and was naturally 
taken to the nearest place for safety, which 
was alongside the quay at Havre. The 
authorities, however, would not allow her to 
stay there, and she was removed to a berth 
which proved to be unsafe under the circum- 
stances, and there she stranded and became 
a total loss. Between the time of her being 
torpedoed and the time that she became a 
total loss no peril intervened to alter the 
effect of the result of the torpedoing, 
although there is some record of heavy 
weather while she was moored in the outer 
harbour, but this was considered to have 
had no effect on the ultimate result. The 
quay at Havre might not have existed at 
all so far as the Ikaria was concerned, for 
she was not permitted to stay there, and 
therefore the narrative can be shortened by 
stating that the vessel, having been tor- 
pedoed, was placed in the safest place avail- 
able, which, however, proved to be an un- 
safe place. It is the same in effect as if, 
after being torpedoed, the Ikaria had been 
run on to the rocks to prevent her sinking 
and had broken her back while there. 

Looked at from this view, it is quite clear 
that the total loss must be attributed to 
the torpedoing. The next case I will refer 
to is that known as the " rat " case 
Hamilton v. Pandorff (1887). Although not 
a case where Underwriters were directly 
involved (for it was a case of cargo owners 
against shipowners, the cargo owners claim- 
ing damages to goods from the shipowners 
and the shipowners claiming that the 
damage was due to a sea peril, and that 
they were not liable) it is an instance where 
the principle of causa proxima was applied. 
We will assume for the purpose of illus- 
tration that it is a case brought by an 
assured against his Underwriters. 

The matter concerned a cargo of rice 
shipped from Akyab to London. On arrival 



106 

in London it was found that the rice was 
damaged by seawater. On investigation it 
was shown that the damage was caused by 
seawater passing through a hole made by 
rate in a leaden discharge pipe. Now 
damage by rats is not a sea peril and is 
not covered by a policy, but damage by 
seawater is a peril of the sea and is 
covered. One would naturally say that if 
the cause of the water entering the hold 
was due to the action of the rats the 
damage by contact of the sea water with 
the rice was a consequence of the action 
of the rats. If you apply to this case the 
same reasoning as I have applied to the 
case of the Ikaria you would perhaps and 
quite naturally arrive at that result, 
as if the causa remota is the action of the 
rats, the intervening causes were the direct 
and unavoidable result of the action of the 
rats. 

But there is an important difference 
between the two cases. In considering 
Hamilton v. Pandorf strictly from an in- 
surance point of view there can be no doubt 
that the proximate cause of the damage is 
contact with sea water, and sea water enter- 
ing the ship from the outside would be a 
peril of the sea. You will perhaps, however, 
remark that, as I have just said, the causa 
remota i.e., the rats has in effect become 
the causa proximo, and if damage by rats 
is not a peril covered by the policy, why 
should the consequential damage arising out 
of the act of the rats <be covered ? 

In the case of the Ikaria I mentioned that 
the total loss of the vessel was due to strand- 
ing, and in the case of the rats that the 
damage was due to sea water, both of which 
perils are covered by an ordinary marine 
policy. The marine policy in the former 
instance contained an exception clause, 
which clause excludes certain perils, as 
follows : 

Warranted free of capture, seizure, 
arrest, restraint, or detainment, and the 
consequences thereof or of any attempt 
thereat (piracy exccpted) and also from 
all consequences of hostilities or warlike 



107 

operations, whether before or after de- 
claration of war. 

Now, in the case of the Ikaria, although 
the stranding is a marine peril, yet it was 
the direct consequence of an act of hostility, 
and therefore the loss becomes excluded 
from the terms of the policy. In the " rat " 
case the Underwriters would have been free 
from damage done by the rats themselves to 
the rice, as such damage is not covered 
under a marine policy. 

There is, however, no similar exception 
ckuse regarding rats as there is regarding 
hostilities. If there had been a clause in 
the policy warranted free from the conse- 
quences of the presence of rats on board the 
steamer, and damage to the rice being the 
direct consequence of the action of rats, the 
policy would have been free from the claim. 
In one case the Ikaria the loss was not 
recoverable because it was a consequence 
of a peril excluded from the policy, viz., 
warlike operations, and in the other case 
it would be recoverable because it was due 
to a peril covered by the policy and there 
was no clause in the policy which excluded 
the consequences of the presence of rats on 
board. 

In the case of Cory v. Burr, the appli- 
cation of the rule of causa proxima is clearly 
seen. The Spanish authorities arrested a 
steamer because her Master was endeavour- 
ing to smuggle tobacco into Spain. The 
act of the Master was an act of barratry and 
the policy covered barratry, but contained 
the F.C. '& S. Clause, i.e., " warranted free 
of capture, seizure, &c." The owners had 
to pay a heavy fine to obtain the release 
of their vessel and they claimed the amount 
from their Underwriters on the ground that 
it was expense occasioned by the barratry 
of their Master. The Court held that 
the expense had been occasioned by the 
seizure of the vessel, and as seizure was 
one of the excepted perils, the Underwriters 
were not liable. 

Speaking of seizure, the following problem 
was recently placed before me. A merchant 



103 

in perfect good faith bought some cases of 
goods and dispatched them abroad. Before 
they reached the seaport the police authori- 
ties seized the goods, as it was found that 
they were stolen goods. The policy covered 
the goods from warehouse to warehouse, 
and the F.C. & S. clause was deleted. 
The owner claims on his Underwriter for 
a total loss by seizure. Is the Underwriter 
liable? I think not. The assured points, 
out that the warranty *' free from seizure " 
has been deliberately struck out of the 
policy and that the effect of this deletion 
is to make seizure one of the risks covered 
by the policy. This is not the correct view 
to take. The deletion of the clause 
merely reinstates in the policy the risks 
which it excluded. We have therefore to 
ascertain whether " seizure " as such is a 
risk covered by the policy. Now the word 
" seizure " does not appear in the body of 
the policy as one of the risks covered. The 
nearest approach are the words " surprisals, 
takings at sea," neither of which could 
apply in this case. The policy mentions 
" men-o'-war, enemies, pirates, &c.," 
" arrests, restraints, and detainments of all 
kings, princes and peoples, &c." If seizure 
arises out of one of these risks it would be 
covered. 

JUDICIAL PROCESS. 
The next question is 'whether the risks 
mentioned can cover the action of the 
police. I think not. The words " arrests, 
restraint. &c.," do not include loss arising 
from ordinary judicial process as would be 
the case here. There is, moreover, a further 
point involved it may probably be that 
this stolen property, although purchased in 
perfect good faith, can never be said to be 
the property of the assured. Under some 
circumstances a person who buys stolen 
goods in good faith and in the open market, 
is entitled to retain possession of them, but 
there are othor circumstances where, 
although the goods may be bought in good 
faith, yet the buyer is not entitled to retain 
possession. If, in the present instance, the 
purchase came under the latter category, 



:o9 

he would have no insurable interest in the 
goods, and having no insureble interest he 
could have no claim. His loss in such a 
case would not be a loss by seizure, but 
loss by the fact that according to law the 
sale of the goods to him wee invalid. 

The next case to which I will refer is 
that of Montoya v. London Assurance. 
Hides were shipped in the same hold as 
tobacco the hides became badly damaged 
by sea water, causing them to ferment and 
decompose, and the noxious odour arising 
therefrom tainted the tobacco. The Under- 
writers were held liable for the damage to 
the tobacco on the ground that the damage 
to the hides was due to a sea peril and the 
damage to the tobacco was the direct result 
thereof. 

I now refer to what is probably the most 
often quoted case in connection with this 
subject, viz., lonnides v. Universal Marine 
Insurance Company. During the American 
Civil War an insurance was effected on 
6500 bags of coffee by a Federal ship from 
Rio Janeiro to New York, with the F.C. & 
S. Clause inserted in the policy. The ves- 
sel went ashore near Cape Hatteras, the 
light upon the Cape having been extin- 
guished by the Confederates with hostile de- 
sign against Federal shipping. The vessel and 
her cargo were totally lost by the stranding, 
with the exception of 120 bags of coffee, 
which were landed and seized by the Con- 
federate troops, and about 1000 bags might 
have been salved had not the soldiers pre- 
vented it. The Court held that the war- 
ranty only exonerated the Underwriters 
from [paying for the 1120 bags holding that 
the remainder were lost proximately by a 
sea peril. The vessel stranded stranding 
is a sea peril, as in the case of the Ikaria. 
If the stranding was inevitably due to the 
extinction of the light (the extinguishing 
of the light being a hostile act), the strand- 
ing would have been a consequence of the 
hostile act. There is little doubt but that 
the stranding would not have taken plac 
if the light had not been extinguished. 



110 

This argument, however, is not sufficiently 
effective. The link in the chain of causa- 
tion is not strong enough. The Master by 
taking his proper reckonings would have 
known where and at what time he would 
expect to see the light, and not seeing it at 
that time and place his suspicions should 
have been aroused, and if he had taken 
precautions to ascertain his whereabouts by 
using his lead, he would have found that 
he was nearing the land and could have 
taken steps to alter his course. The strand- 
ing was, therefore, brought about by the 
want of due care on the part of the Officers 
of the ship. If it could have been shown 
thet every ship on a voyage from Rio 
Janeiro to iNew York at that time must 
inevitably have gone ashore owing solely 
to the absence of the light, the case would 
have been decided otherwise. 

WAR INSTANCES. 

I will not detain you much longer, but you 
will probably like to hear some remarks 
on two important classes of cases which 
have arisen during the war, viz., accidents 
arising from collisions between vessels sail- 
ing without lights, and losses sustained by 
owners of cargo on board German steamers 
which took refuge in Neutral ports on the 
outbreak of war. With regard to the first- 
mentioned class of case, the Courts have 
decided that when two merchant ships 
sailing without lights come into collision 
owing solely to the absence of lights, the 
damages arising from such collision are re- 
coverable under the marine policy and not 
the War Risk Policy. The " man in the 
street " would naturally say, " If the ves- 
sels in accordance with Admiralty instruc- 
tions sail without lights, in order that their 
whereabouts may not be disclosed to the 
enemy submarines and thus minimise the 
chances of attack, losses solely arising from 
precautions to avoid the peril must be taken 
as losses due to the peril." While this 
appears to be a reasonable argument, it 
will not bear the causa proxima test. 

If it could be shown that submarines were 
in the neighbourhood, and in order to re- 



Ill 

move the ships from imminent perils, orders 
were given to steam full speed ahead, and 
in so doing, owing solely to the absence of 
lights, the collision occurred, the result 
might be different. In the case where the 
point was tried, viz., the Petersham, no 
such suggestion was made. The order to 
sail without lights was general, whether 
submarines were known to be in the vicinity 
or not. The damage was due to collision, 
a risk covered by the marine policy, and was 
not excluded by the F.C. and S. clause, 
because the collision was not due to conse- 
quence of hostilities but to a precaution 
taken to prevent a possible hostile attack. 
During the air raids, all lights were ex- 
tinguished in the streets. Supposing a motor 
without lights, proceeding along the road, 
collides with another car, also not showing 
lights, and the collision is solely due to 
the absence of lights on both vehicles you 
could not say that the collision was the 
result of hostile operations. The Zeppelins 
might not come within miles of the place. 

In another case the Saint Oswald and 
Suffren were in collision, occasioned solely 'by 
the absence of lights, and the Court held 
that it was a " war " loss, the reason being 
that the Suffren, which was a battleship, 
and the Saint Oswald, which was engaged in 
the transport of troops, were both employed 
in warlike operations. The sailing without 
lights was to enable these warlike operations 
to be carried out with immunity from attack 
by submarines, therefore the loss was attri- 
buted to the consequence of warlike opera- 
tions. I now deal with my last illustration, 
that of the Kattenturm, Becker, Gray & Co. 
v. London Assurance Corporation. The 
Kattenturm was on a voyage from India to 
Hamburg, and on the outbreak of war was 
in the Mediterranean. The Master at once 
made for Messina and decided to stay there. 
It may be admitted that had he attempted 
to proceed on his journey the chances were 
ell in favour of the vessel being captured 
by one of the Allied cruisers when he 
approached Gibraltar. He very wisely did 



112 

not make the attempt, but decided to re- 
main where the Allied cruisers could nofc 
reach him. Messrs. Becker, Grey & Co.'s 
goods were insured by a policy with the F.C. 
& S. Clause deleted, so that the policy 
covered such war risks as were included in 
the body of the policy. A claim was made 
for total loss on the ground, among others, 
of capture, the plaintiffs alleging that had 
the vessel proceeded she would have been 
captured. This would have been quite pro- 
bable had the steamer gone on, provided, 
say, she reached the neighbourhood of Gib- 
raltar, but, on the other hand, she might 
have been sunk by collision or driven ashore 
durinsr a storm before she came near to 
Gibraltar. She was no more in peril of 
capture at Messina than a man would be in 
peril of drowning if he stayed on the bank 
and did not go into the -water. If the 
steamer had been chased by an Allied 
cruiser and sought shelter at Messina, and 
the cruiser remained outside waiting for her 
to reappear, the assured might perhaps have 
then reasonably claimed that the Master 
was prevented from resuming the voyage by 
reason of the presence, with hostile inten- 
tions, of the cruiser off the port, and in 
this way the imminence of the peril of 
capture might have been said to have frus- 
trated the adventure. 

The facts were, however, quite otherwise. 
The voyage was abandoned by the voluntary 
act of the Master who, fearing capture, 
sought shelter at Messina. A loss caused 
by fear of a peril is not a loss by the peril 
itself. If the peril is imminent or if it is 
present, then a loss caused by attempts to 
escape from it may be attributed to a loss 
by that peril. As, for instance, a vessel 
being chased by a submarine. The Master 
orders steam full ahead, and if, in spite of 
good seamanship, the vessel in escaping 
meets with an accident, the resulting dam- 
age would, I think, be considered to be a 
consequence of warlike operations. 



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